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Institute for Public Accuracy
FOR IMMEDIATE RELEASE
JUNE 30, 2004
2:24 PM
CONTACT:  Institute for Public Accuracy
Sam Husseini, (202) 347-0020
David Zupan, (541) 484-9167
 
* Fed Interest Rate Hike * Housing Bubble
 

WASHINGTON - June 30 - ELLEN FRANK, efrank@ric.edu, www.beacon.org/catalogs/sp04/frank.html

Author of the just-released book 'The Raw Deal: How Myths about Deficits, Inflation and Wealth Impoverish America', Frank said: "Today, the Fed's Open Market Committee is meeting behind closed doors to decide whether or not to raise interest rates. Raising interest rates, even by a quarter point, would signal the Fed's clear intention to begin reining in U.S. economic growth, ostensibly to prevent inflation, though the core inflation rate is currently less than 2 percent. For nearly three years, job growth has been stagnant and real wages have declined. Only in the past few months has the labor market begun to show signs of life, yet the unemployment rate remains 40 percent higher than in 2000. So let's be clear on what is happening here. The FOMC, an unelected, secretive body with intimate ties to the finance industry, is prepared to slow the economy and raise unemployment. With no input from labor groups, community groups, the general public or even members of Congress, the Fed will simply decide for itself the most monumental question of economic policy -- how much unemployment should a civilized society tolerate?"

WILLIAM SPRIGGS, wspriggs@nul.org, www.nul.org

Spriggs is executive director of the National Urban League Institute for Opportunity and Equality.

JUDE WANNISKI, www.polyconomics.com

Wanniski is president of Polyconomics, Inc. He co-wrote an oped with James Galbraith, professor at the Lyndon Baines Johnson School of Public Affairs, the University of Texas at Austin, which was published in the Washington Times yesterday. The piece began: "One of us is the First Supply Sider. The other is the Last Keynesian. One is Republican; the other Democrat. One helped invent Reaganomics; the other spent four years trying to stop it. Yet we agree on one thing. Alan Greenspan should not raise interest rates now or in the near future." [See: http://washingtontimes.com/commentary/20040628-092019-6437r.htm]

DEAN BAKER, dean.baker1@verizon.net, www.cepr.net

Co-director of the Center for Economic and Policy Research, Baker said today: "Just as he allowed a stock bubble to inflate to dangerous proportions in the late nineties, Alan Greenspan has allowed, and arguably promoted, the development of a housing bubble in the last four years. For the first time in the post-war period, home prices have substantially outpaced the overall rate of inflation, creating nearly $4 trillion in bubble wealth. While the collapse of this bubble will almost certainly lead to a recession, the problem is only made worse by delaying the inevitable. Mr. Greenspan should have the courage to follow the example of Mervyn King, the head of the Central Bank of England, and make a clear and unambiguous warning about the dangers of a housing bubble."

Baker has written several articles on the housing market, most recently: "The Housing Bubble in New England" [see: www.cepr.net/New_England_Housing_Bubble.htm]. Baker predicted the stock market bubble. In December 1999, his piece "After the Fall: The Stock Market Will Crash, Then What?" was published in the magazine In These Times [see: www.inthesetimes.com/issue/24/01/baker2401.html]. On March 16, 2000 (a day when the Nasdaq closed at 4,717.39), Baker was quoted on an Institute for Public Accuracy news release: "The main feature of the 'new economy' is a stock market bubble of unprecedented magnitude. When the bubble bursts, the new economy will just be a bad memory." [See: www.accuracy.org/press_releases/PR031600.htm].

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