Why all the focus on just Fed policy? I’m with Alan Greenspan on also looking at our fiscal policy.
Question/Comment: Why all the focus on just Fed policy? I’m with Alan Greenspan on also looking at our fiscal policy. Just lowering interest rates without raising revenues could just lead to more inflation. Thank you.
Paul Solman: What Robert is saying here is worth thinking about. The WAY the Fed lowers interest rates is by injecting the Fed’s money into the banking system and the Fed’s money is as good as…I was going to write “gold,” but of course the U.S. went off the “gold standard” in the 1930s and stopped promising to give you gold for your “Federal reserve notes” (take a break to look at the words above George Washington’s head on the dollar bill for a minute).
If there’s more money in the economy – “ceteris paribus” – why, the money will be worth less. That’s inflation.