Strike against inflation may torpedo economy

April 08, 1997

I DISAGREE WITH the March 26 editorial's account of the recent interest rate hike and its assessment of Alan Greenspan.

The interpretation of the financial markets' reaction is also of dubious veracity. Astute analysts understand that the markets are ever watching for signs of erosion of future profitability, not necessarily relief over Fed action. We'll have to wait and see how this plays out.

Yes, the Federal Reserve chairman enjoys a significant following. But the fact remains: there always has been, and still is, significant opposition to the notion that there can be an effective pre-emptive strike against future inflation in a dynamic, but uncertain economy, with an unforeseeable future.

What we know about our national economy is that during periods of slowing growth, the budget deficit grows, adding to our more than $5 trillion national debt, as revenues from corporate profit and personal income decline.

The central bank's "pre-emptive" move is prompted by irrational expectation. They know that higher cost of borrowing leads to inflation.

The Federal Reserve Board conceded that in 1992, -- answering my letter that Sen. Barbara A. Mikulski was good enough to forward -- but offered that empirical evidence shows it reduces inflation in the long run.

"Experimental" appropriately sums up the central bank's modus operandi.

Consider that economic decline is its product; its last recession followed an attempt in 1988, after the July consumer price index showed inflation at 2.8 percent, to achieve zero inflation, then blamed the Gulf War. Shame.

The rate reduction, ending the 1990-91 recession, is the engine of our low inflation and four years of deficit reduction.

Now the risk is that the recent, one-too-many rate hike will be followed by additional ones that could precipitate a recession. Everyone knows, that means no balanced budget and economic suffering for the vulnerable. I can't support that.

Vincent A. Henderson


Pub Date: 4/08/97

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