October 5, 2002
Investor confidence low
Chuck Walheim contends that the stock market crashed because Alan Greenspan didn�t raise interest rates, and now suggests that raising those rates is the way to re-stimulate the economy. (�Hurts to follow bouncing dollar,� September 27.)
He�s wrong.
In 2000, Greenspan did raise rates, and for Walheim�s reasons � the huge inflation of stock prices. Makes it hard to blame him for not doing it.
Walheim�s solution, then � to raise rates again � is not viable. The problem is not low interest rates, but lack of investment capital. Investor confidence is low, and people feel safer with their money in FDIC-insured banks.
With more, and larger, accounts, banks can make high earnings on sheer volume, regardless of rates, and it is the low rates that spark home-buying and preserve the American Dream. People buy houses for the long term and are not motivated by the fear that interest rates will rise.
The problem is not interest rates. The problem is investor confidence, rattled by the bursting of the dot.com bubble, high interest rates and corporate malfeasance. Until and unless that confidence is restored, the economy as a whole will remain flat and uninspiring.