I'm going to go way out of my depth today and talk about something that has intrigued me and hopefully will be of some interest to you as well.
What is the true effect of artificially low Fed rates?
First, capital is cheaper than labor. If you are a business looking to expand your company, temporarily low borrowing rates will encourage you to invest in infrastructure, capacity, and efficiency over the long term costs of employment. A good example of this would be self-checkout at the grocery store. At a time when labor costs should be at an all time low, our businesses are replacing them with technology. This isn't just because technology is neat. Money is cheaper than labor and the money spent on efficiency does not burden the business with long term maintenance costs.
Second, low bond rates counter-intuitively encourage savings and depress demand. While economists have long suggested that the economy can be stimulated by encouraging investment with higher rates of return, that is not necessarily true for the average investor. If I lend you money at 0% and your lend it out at 5%, you just made some free money. That may be true at the bank level, but it is not true for the individual saver/investor, particularly not in this economy. If I have to save twice as much to create the same nest egg, a reasonable saver will do so without regard for more risky investments (particularly in light of the events of 2008). Meanwhile, due to the demand of raw goods in emerging markets, inflation of prices increases.
Here's another perspective on how the Fed's inflation targets have further hindered employment.
Based on what little research I've been able to do on this subject, economists are not in agreement as to the effect monetary policy is having on our employment situation, but there does seem to be some agreement that with either tax cuts or deficit spending, the effect of such a stimulus would be absorbed quickly without a coordinated move by the Central Banks. What that move would be, I can't say.
LINKS
Vice President Biden should be put in a closet for the rest of the election. Yesterday he told an audience in Virginia that Mitt Romney's policies would "put y'all back in chains" and then encouraged this Virginia audience to help them win "North Carolina". Bump, Set, Spike -- Mitt Romney "Mr. President, take your campaign of division and anger and hate back to Chicago."
The FiveThiryEight Blog notes that the "VP Bump" for Paul Ryan is coming in below expectations and below the "bumps" of recent history. Still plenty more polls to come in, but this should be an interesting development to watch.
Not surprisingly, Central Committee Chairs from both sides of the Howard County political spectrum are happy with Mitt Romney's VP pick.
The General Assembly has passed the gambling bill, sending it on to the ballot for referendum.
Guy Guzzone -- Yea
Frank Turner -- Yea
Shane Pendergrass -- Yea
Jim Malone -- Yea
Steve DeBoy -- Yea
Liz Bobo -- Absent
Gail Bates -- Nay
Warren Miller -- Nay
Ed Kasemeyer -- Yea
Jim Robey -- Yea
Allan Kittleman -- Nay
Bullies win in Annapolis, especially with the help of their friends.
Featured Blog Post of the Day: WB roasts Delegate Frank Turner for tucking tail and voting for the gambling bill after writing an "academic paper critical of casino gambling" and expressing his opposition to expanded gambling early on in this process.
That's all for today. If you haven't already, please RSVP for next week's Homeless Ending Happy Hour at The Rumor Mill.
Have a great Wednesday doing what you love!
