Ubuntu chief decries interest rate cut

Canonical Chief Executive Mark Shuttleworth, founder of the Ubuntu version of Linux, called Tuesday's interest-rate cut the "most extraordinary failure of economic leadership in recent years."

U.S. Federal Reserve Chairman Ben Bernanke cut interest rates 0.75 percent on Tuesday, but Shuttleworth derided the move as "press(ing) the 'emergency morphine' button" in a blog posting that indicates the open-source software executive also has an interest in macroeconomics.

Markets "are smart enough to see that all Bernanke has done is cover up the symptoms of malaise," he said and offered a gloomy forecast: "I expect that any relief will be brief, market recoveries will fade, the rout has been deferred but not averted."

Shuttleworth argues that former Federal Reserve Chairman Alan Greenspan was able to use the interest-rate cuts as a tool to avert U.S. economic troubles because the usual penalty of reducing interest rates, inflation, wasn't a factor. But he also argued circumstances have changed since then, and it was foolish for Bernanke to cut rates.

"With hindsight, it appears that the real reason for the absence of inflation (during Greenspan's reign) was that the Chinese were increasing their productivity dramatically, and that U.S. consumers were spending so much on Chinese goods that Chinese productivity growth, not U.S. productivity growth, was keeping U.S. prices low," Shuttleworth said.

Bernanke is using the same approach now, but this time without "the deflationary Eastern wind" from China, Shuttleworth said. "Greenspan made a mistake, and it will have huge consequences for the U.S. for a generation, but he had reasons for that mistake. Bernanke just blinked, he panicked, despite knowing better."

[Dachi]

Shuttleworth, as usual, is correct

One of the reasons we are in so much trouble is because confidence in the USD is at an all time low.

By lowering the rate, the fed is essentially responding to the recession by printing more money and further decreasing the value of the already weak dollar.

This is a knee jerk reaction that will only worsen the long term situation by increasing inflation.

The current USD is worth something like 15 cents compared to the USD of 1960.

How about the government cuts spending instead of lowering the interest rates?

By the time I retire I will be happy if the USD is even still a currency let alone expect to collect social security.

[Solaris_User]

Ron Paul asks How do we fix inflation with more inflation?

The answer is you can't, the Fed needs to allow this recession to happen and let the market correct itself because if they try to delay it by lowering the rates it will only make the coming recession that much worse in the end.

[bjjlyates]

Bad move!

Let me see...

Economic slowdown...
Increasing unemployment
Devaluation of the dollar
Increasing prices
Inflation

Stagflation - A situation in which a nation's economy is
characterized by relatively high price inflation and low (or
negative) rates of economic growth

Anybody remember the nightmare of the late 70's? Here we go
again!

[suyts]

While we should be slightly concerned,

We're nowhere near the economic disaster of that time. Just look at the numbers.
Late 70's..... almost 9% unemployment, inflation about 12-13%, interest rates....over 20%(prime)!!!
Today 5%, 2.85%!!!!, and now 6.5%, respectively.

We should probably allow the market to correct itself, though. It has been overdue. Most of the problem is the value of the dollar and any interest game played won't have much effect on it.

The dollar is low because we are becoming more and more a service based economy. We produce less and less of real tangible goods. If we continue to encourage companies to outsource our jobs, and import more workers(who consequently export our cash), and continue to expand our service industry while discouraging our goods industry, disaster surely awaits. Still we have time to correct our current course.

[JohnMcGrew]

Such is the problem in a "democracy"...

...when the media endlessly hypes something, and the echo chamber starts resonating "do something" when the best response would be to do nothing. The same goes for this insipid "stimulus" package, where I'll be getting a $1200 check this year that I'll just be paying back next year in the form of new and higher taxes. Thanks Bush & Democrats! Your vote-buying scheme is basically a 1-year loan forced upon me at over 100% interest!

If the market is freaked out about anything beyond inflation, it?s the prospect a half-dozen presidential candidates with fascist/socialist/communist economic proposals. That is the real problem.

[Bob Robertson]

It wasn't always this way.

In 1836, there was a recession where the US lost
about 1/3 of its money supply. This drastic
deflation has only been approached since at the
start of the Great Depression.

However, the results were very, very different.
http://www.mises.org/mp3/Pres/Pres11a.mp3

Now imagine how, if the same "stimulus" package
that worked in 1836 were applied now. Actual
recovery instead of "stagflation" again!

[EBChasSC]

Yes???? So ....

Who cares a rat's furry butt what he thinks ...?

[Dango517]

The tax rebates will do more damage

Many do not realize that the US deficit is now over 3 Trillion dollars largely due to the Bush tax cuts and the war in Iraq. To put this in perspective no other American President has created this level of debt; all preceding Presidents added at or below 2 Trillion dollars to the debt. The recently announced tax rebates will add even more to this unpaid balance and further weaken the economy. Really bad idea. Ask yourself this, will the American people be buying houses with this money? If not, how will this help what ails us.

[JohnMcGrew]

Hardly

Deficits are due to spending. Tax revenues have INCREASED since the tax cuts.

Ever notice how in congres-speak tax cuts have to be "paid for", but checks issued willy-nilly to almost everyone (except those who pay the most taxes) do not?

It's a sham.