If you're a liberal, you can easily make the argument for tax incentives to promote a "Green Revolution", but fiscal conservatives should appreciate the need for them as well.
The government has been providing a bias towards big oil by providing stimulus and tax incentives that are not eligible to green industries. Under normal conditions, one could argue that repealing these tax incentives/stimulus would be a good way to unbias the government's selection of big oil over green.
But what do we do in a recession like this one? Repealing stimulus/incentives (even to big oil) is an depressant to the economy. So, the best way to spur growth and unbias the playing field should be to provide the same incentives to green energy technologies.
A liberal would argue that the big oil incentives should still be repealed. The problem is that this again biases the industry. What should happen is that during the next economic boom, these incentives should all be repealed. This would allow the next wave of technologies to emerge if they are worthy.
Tuesday, March 3, 2009
Sunday, March 1, 2009
As home sales stall, there are 2 effects on the demand for mortgages - 1) the number of mortgage decrease and 2) size of the mortgages decrease (lower home prices). As a result, the overall dollars demanded should also decrease.
With lower demand for money, interest rates should drop until the point at which money becomes cheap enough to incent home buying.
Why then must the Fed control rates?
I assume that its because the Fed is already controlling rates. So if they keep the rates too high during a recession, then banks get squeezed until they stop lending. They need to lower rates to create a sufficient spread to incent banks to lend.
What if the fed didn't exist? What if it kept rates fixed at 0?% Would the market regulate itself sufficiently? Banks would presumably lend as much as they could at high rates. If the demand dropped, they would lower rates. What would the spread be? It would be whatever they would obtain equity at - so banks would be forced into long-term prediction of interest rates... which they do now - would they be better at predicting if there was more on the line?
With lower demand for money, interest rates should drop until the point at which money becomes cheap enough to incent home buying.
Why then must the Fed control rates?
I assume that its because the Fed is already controlling rates. So if they keep the rates too high during a recession, then banks get squeezed until they stop lending. They need to lower rates to create a sufficient spread to incent banks to lend.
What if the fed didn't exist? What if it kept rates fixed at 0?% Would the market regulate itself sufficiently? Banks would presumably lend as much as they could at high rates. If the demand dropped, they would lower rates. What would the spread be? It would be whatever they would obtain equity at - so banks would be forced into long-term prediction of interest rates... which they do now - would they be better at predicting if there was more on the line?
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