Geithner A Good Choice, If Flawed

President Obama chose Timothy Geithner as the next treasury department head. This is a positive event due to his experience in the Federal Reserve and his relations with Wall Street. However, Geithner may not be able to fully exercise desired policies due to political pressure from the White House. Unfortunately, Geithner's not perfect on paying taxes, but his record is otherwise clear and his fault has been spoken for. More on his assignment:

Geithner has been the head of the Federal Reserve Bank of New York for the past six years and was a key participant in decisions made by the Bush administration to deal with the worst financial crisis to hit the country since the Great Depression.

All five of the "no" votes on the committee came from Republicans, including the top GOP member of the panel, Sen. Charles Grassley, R-Iowa. Those voting no said that they did not believe Geithner had been candid in his answers on why he failed to pay Social Security and Medicare taxes. They said they viewed this as a serious error for an official who would head the agency that oversees the IRS.

Will Rate Cut Cause Inflation?

Of course if you took macroeconomics, the answer is yes... but there are a lot of factors at play.

1. The Fed will cut rates near 0%. This will undoubtedly increase the money supply and the liquidity of the markets. After the September 11th attacks, the Fed lowered rates to 1% and it spurred the housing boom... which led to the housing bust.

2. We're pumping in at least $700,000,000,000 into the economy. Considering our GDP is only about $11 trillion a year, this is a huge investment. This also increases the money supply and the availability of cash and credit.

3. Gas prices have dropped dramatically in the last couple of months. While this is good, all of the extra money that would have went in the gas tank is instead either being saved or being spent on consumer goods. That extra money being spent is being pumped into the economy, also increasing the money supply.

Naturally, these factors will help spur economic growth, which is also a good thing. However, when the economy begins to hum again, this excess money will still be floating around. Coupled with increased spending by a resurgent economy, this could cause severe inflation. Not to mention if gas prices again shoot to $4 a gallon. And if the economy is going well, state and the federal government may also dramatically increase spending. All of these factors could push inflation over 7% by 2011.

Yes, I took macroeconomics.