Hi, I didn’t follow politics closely during the Clinton adminstration, but I’m a liberal who finds himself debating frequently w/ conservatives re: issues w/ Clinton’s presidency, among other things.
IIRC, Greenspan intentionally raised interest rates during some of Clinton’s term.
Honestly, I don’t know much about economics (i.e. fed. interest rate on bonds/loans/???).
Could someone please clarify whether or not this was done intentionally, and if so, what economic effects it had?
First, Clinton did not raise interest rates. The Federal Reserve acts independantly of the President.
The purpose of altering federal interest rates is to attempt to affect the money supply. Suppose the Fed decides it would be a good idea to raise the discount rate for lending money to banks. This would mean the banks would be able to borrow less money from the Federal Reserve, or that they would have to raise their own interest rates in order to make more money to pay the Fed back. When private banks raise their interest rates, fewer people take out business loans, mortgages, credit cards and so on. The overall effect is that the money supply grows more slowly, which causes people to purchase less.
During most of the Clinton administration, the US economy was booming, due to a variety of factors. History teaches us that unrestrained, super-fast growth oftend ends in economic catastrophe. The Fed wanted the economy to continue growing, but to slow things down to a more reasonable rate. They raised and raised interest rates, in the hopes of discouraging banks and businesses from taking on more debt. They were partially successful, but as you’ll recall, we experienced a rather dismall economic hiccup beginning around the summer of 2001. Now, in order to help recover from that, the Fed has been steadily reducing interest rates, to encourage banks to make more money available for borrowing, in order to increase demand for manufacturing and services.
I started out as knowledgeable about this subject of you, but have done a little searching for your benefit. The far more detailed responses that will inevitably follow will address the question in more detail, but here’s something to whet your appitite.
http://www.ncpa.org/ba/ba134.html informs us that Clinton’s aim was to lower interest rates. The result was the opposite, they rose.
Simple economic theory tells us that when a government becomes able to spend more, as it would after a reduction in deficit, competition for loans and such rises, so interest rates invariably follow suit. It is possible that something like this contributed to the rising rates.
First off, don’t be drawn into a debate about the “Clinton administration” raising interest rates. Alan Greenspan, who is leading the Federal Reserve Board now, had the same job in the Clinton years – and the Fedetral Reserve Board does not take orders from the President, Democratic or Republican.
Political rant aside, what the Fed tries to do is manage economic growth. Too much growth == overinflation, which leads to a high cost of borrowing money and a too-cheap dollar (where imported products are so cheap, American manufacturers can’t compete in this country.)
Too little growth == a stagnant economy, where business is unwilling to invest in growth because it forecats too little return, and a too-expensive dollar (where American products are so expensive in other countries, American manufacturers can’t compete overseas.)
During the 1990s, the economy was chugging along nicely for most people, so the Fed raised interest rates to slow expansion to a manageable level and (they hoped) prevent a bust at the end of the boom.
However, the end of the dot-com boom and the aftermath of 9/11 would have pretty much caused a crash whatever the Fed had done, so in this instance, it’s difficult to judge the effect of their actions.
Greenspan also tried to cool off the stock market bubble that the Fed saw forming. Can anyone say “irrational exuberance?”
Raise rates makes it more expensive to borrow money to throw into the stock market.
Yeah, well, they shoulda raised the margin on borrowing shares, which is under their direct control, and would have been more like aiming a rifle rather than a shotgun at the problem.
Putzes.
Typical :rolleyes:
But for the hell of it. There isn’t anyone that will disagree that the economy was in good shape during Clinton’s administration. Interest rates were kept high to discourage inflation. The economy is in the dumper right now, so interest rates have be lowered to stimulate the economy Truth is that this all has very little to do with Clinton’s or Bush’s policies and a lot to do with the natural fluctuation of the economy. It could not have kept on like it was in Clintion’s time although he wanted everyone to think he was an economical guru.