The Politics of Recession

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

I have suggested that Bush and his team have every incentive to
pin the inevitable recession solidly on Clinton.  The Fed
decision today, which I have predicted in an earlier post: "My
take is that the Fed in December will hold ff rate unchange and
remove that inflation bias (balance of risk)", confirms that
strategy.  If Gore were elected, Greenspan would have surely
lowered ffr today, perhaps even by a full 100 basis points.
Greenspan's record shows that he has been 6 mongths late in
responding to recession signals and Fed data are generally 2
months late.  Thus a reversal of Fed policy only after January
20 can be expected  with the perfect excuse of lag time.   At
any rate, even if Greenspan cuts ffr to 2%, by next June, it may
not help because of the dollar exchange rate problem.   Bush can
use a mild recession to push through his tax cut anyway, except
this one won't be mild by a long stretch.  Some very astute
economists (easy, Allan, I have names) think that the surplus is
the problem and that what the US economy needs at this moment is
a healthy deficit, not from tax cuts, but from government
spending.  I think these economists are on target, but even then
it may be too late, because private sector debt is too
overwhelming.  And the IMF is still going around the global with
blindly demanding government surpluses.  Its going to get bad
before it can get better.  The Japanese dceade-long drought
looks likely to repeat in the US, unless the Fed is prepared to
sacrifice the US banks, something the Fed has been telling the
Japanese to do for years.

Henry C.K. Liu

confirm