Today, Agent Greenspan and his posse at the FOMC are set to drop interest rates again. Oops, make that yet again. Never mind that interest rates are at historically low levels. Don’t get me wrong, I respect Greenspan and think he has done a generally good job in the past. However, I don’t think one more cut is going to help anyone. I believe there is a point beyond which rate cuts do not stimulate the economy, and that we are there.
Businesses are still not making large capital investments — the official reason why lower interest rates stimulate the economy. Theoretically, businesses expanding on cheap credit build bigger plants and hire more people to work in them (hasn’t happened), and the companies which supply the infrastructure must also expand to meet demand (also not happening).
To make matters worse, the insurance companies are not making money on their investments because of low interest rates, which means premiums must go up. This creates a fake “crisis” in any business which requires heavy insurance coverage.