Economist Loves to Party
Slate’s Daniel Gross says that Jim Cramer and other fat cats who want the Fed to cut interest rates constitute a Punch Bowl Caucus who want to be bailed out against the long term interests of the economy.
College students don’t alleviate the after-effects of an evening spent at the punch bowl by returning to lap up the dregs. Just so, finance types should know that cheap money, credit on demand, and endless leverage aren’t the cure for a hangover caused by too much cheap money, leverage, and credit on demand.
At least he’s consistent. Three years ago, he argued that low interest rates with an anti-party message:
Ordinarily, a prolonged period of rock-bottom interest rates should be an excuse for consumers and corporations to party. And the recent data showing job creation, high growth, massive productivity gains, and cheap borrowing rates make a pretty potent cocktail. The problem is that not everybody is joining in the revelry. Indeed, interest rates remain low in part because far too many corporate executives are sitting on the sidelines, sipping club soda.
Of course, it now seems that too many people joined in the party, buying homes they couldn’t afford on loans they couldn’t pay back. While the club soda sippers shouldn’t bail them out for their bad decision, it might make sense to cut rates to allow them to refinance their loans so as to avoid making us all smell the after-effects. Think of it like offering a designated driver or letting them sleep it off on the couch rather than putting them on the road drunk.