Columbia's Economic Transformation

Do corporate tax rates matter?

The Leading IndicatorsAre Down

On Thursday, the Conference Board announced its index of Leading indicators fell three tens of a percent from January to February. It has fallen five straight months and is a percent and a half below its level six months ago. More evidence we are in a recession.

How Deep Will the Recession Be?

What The Fed Did Last Tuesday

Bill Gross, who manages more money in bonds than anyone else in the world, looks at the Federal Open Market Committee's decision last Tuesday to cut its target for the Federal funds rate by 75 basis points to 2.25%.

What The Fed Did Last Tuesday

What Is Good For Wichita Is Hemlock For Wall Street

The strong dollar and the commodity price boom undermine the value of financial assets (see below), but they help U.S. exports. Wall Street's poison is Wichita's tonic. With an export base of aircraft and natural resources, "[s]o many of the things our local economy depends on are doing ... well.”

If you click on KSN you will hear: "'We've been in an economic recession nationwide for probably six months, maybe longer,' said Dr. Malcolm Harris Sr. with Friends University. 'The data is finally catching up with us.'"

Why the Fed Should Raise the Federal Funds Rate Not Lower it Today

I know it is heresy, but the Federal Open Market Committee should raise short term rates today. We are in a dollar crisis. This dollar crisis is at the heart of the financial crisis. The threadbare currency is the street person who dropped in on the high society party and whom no one wants to acknowledge is present.

Reuven Brenner, a partner at Match Strategic Partners and a professor at McGill University, points out that "few are noticing the fact that, since 2002, trillions of dollars worth of business and U.S.-government debt value has evaporated. This happened because the Federal Reserve has neglected the dollar." As the dollar falls, the value of dollar denominated assets fall in euro and yen and pound and Aussie dollar terms. Little wonder foreign investors want to dump U.S. dollar mortgage backed securities which are at the eye of the storm.

Professor Brenner notes, "Alan Greenspan says that a measure of stability will be restored when house prices stabilize, which may be accurate. But why would capital flow into real estate denominated in dollars that are still expected to plunge?" The same is true of financial assets. He advocates a commodity anchor for the dollar, a position I have long advocated myself.

Given that we are unlikely to get a new monetary system, what should be done? We need a coordinated effort of the Federal Reserve with the other major central banks to support the dollar. To accomplish this with credibility, the Fed would need to show its commitment to fight inflation and to restore the exchange rate. That means raising the federal funds rate target. This would cause a political firestorm, but it would be the only way to calm the financial storm that is swamping the U.S. and limit the economic damage from it.

The Fed Has Cut the Discount Rate and Will Lend to Security Firms

The Fed has been busy. They cut the discount rate; they strong armed J.P. Morgan to buy Bear Stearns and Bear Stearns to sell themselves; and they lent J.P. Morgan $30 billion to make all this work. The repo market has seized up and that interferes with the Fed's ability to conduct monetary policy.

Hear more from the Wall Street Journal.

The Journal's poll of Economists Says We're in a Recession: Hear It Here