ECONOMIC developments
Consequences of Lying Economic Stats
A lesson on Banking & housing prices
McCain/Republican planned tax cut plus Housing Market Crunch
Sub-prime Bailout--banks, not homeowners
Neoliberalism, their global agenda--jk
Neoliberalism, Robber Barons, an historical view--jk
Neocon Economics Data--Reagan to Bush
US DEBT--explained
What 2008 has in store
The Great Debt Crisis Begins-08
Debt to Grow, Whomever is Elected
Trickle-down shit
Analysis of effects of tax cuts--exposes the neocon lie
Municipal Bonds are impacted by home loan defaults--dominoes
Let Them Die, the position of big PHARMA and WTO trade treaties
Financialization, the major new economic trend
China, poverty and manufacturing
Globalization and the Super Rich
Analysis of effects of tax cuts--exposes the neocon lie

The right wing has continually made the argument that the 2003 tax cuts were the primary driver of the current recovery. Powerline's John Hinderacker is the latest pervayer of this myth:

From Huffington Post, Sept. 18,  2007


The stock market is at record highs, unemployment continues at historic lows. What's not to like? Of course, one can always question the link between prosperity (or the lack thereof) and government policies. But in President Bush's case, it seems pretty obvious that his tax cuts prevented what could have been a disastrous downward spiral. At a time when our economy was subject to the double-whammy of recession and the bursting of the tech bubble, the terrorist attacks of September 11, 2001 could easily have sent the economy into a tailspin.

The problem with this statement is it gives no mention of the effects of interest rate policy on the US economy. As I will demonstrate, record low interest rates were in fact the primary driver of this economic expansion, not the 2003 tax cuts.



The chart above is from the Federal Reserve of St. Louis and it is a chart of the effective Federal Funds rate. This is one of the interest rates the Federal Reserve can directly increase or decrease at the Federal Open Market Committee meeting. Notice the Federal Reserve started to aggressively cut the effective Federal Funds rate on January 3, 2001 when they cut the rate from 6.50% to 6%. They continued to cut the rate aggressively for the remainder of the year. The rate dropped to 1.75% on December 11, 2001. There is a standard economic proposition that it takes 12-18 months for interest rate cuts to move through the economy and have their maximum impact. Under this logic, the interest rate cuts would have started to have a complete stimulative effect in the first half of 2003 which is exactly when the US economy started to grow at a decent rate.

Why is there a lag time? There are several reasons. The first is consumers like to wait and see if the drop in rates is a permanent change in Fed policy or a one time event. In order to ascertain the Fed's real policy intentions, consumers need to see more economic data which takes awhile to come out. There is also the issue of when the Fed usually cuts rates. This usually happens when the economy is already slowing or when there is a perception the economy will slow. When this happens consumers are simply more risk adverse and are less likely to take out a loan.

However, the total amount of mortgage borrowing that has occurred as a result of record low interest rates is clear from the following chart.

According to the Federal Reserve's Flow of Funds total household mortgage debt outstanding has increased from $5.325 trillion in the fourth quarter of 2001 to $10.143 trillion in the second quarter of 2007. In other words, US households have almost doubled their mortgage debt outstanding during this expansion. Econ 101 explains the reasons for this massive increase in debt: when the cost of a product is low, people buy more of it. Interest rates are the "cost of money" -- the amount it takes to borrow funds.

When you add that much money to the economy, it is bound to grow. It's that simple.

So, no John, the tax cuts had jack to do with this expansion. Record low interest rates had everything to do with the latest expansion. Anyone with a economic knowledge knows this. Of course, that would imply you have economic knowledge.


Must watch:

Parts of Europe (such ask Netherlands and Denmark) use small local electricity generation plants, which permits the use of the byproduct heat for heating.  In one example they use all he CO2 generated to supply 4,000 hectares of green houses.   The combined heating and energy production (CHP) is a proven technology that lowers the energy consumption for electricty and heating by over 50%.   British (BBC) documentary on this


Teddy Roosevelt's advice that, "We must drive the special interests out of politics. The citizens of the United States must effectively control the mighty commercial forces which they have themselves called into being. There can be no effective control of corporations while their political activity remains."


For the best account of the Federal Reserve  (  One cannot understand U.S. politics, U.S. foreign policy, or the world-wide economic crisis unless one understands the role of the Federal Reserve Bank and its role in the financialization phenomena.  The same sort of national-banking relationships as in our country also exists in Japan and most of Europe.