Tags: Forbes: | Fed | Making | Same | Mistake | BOJ

Forbes: Fed Making Same Mistake as BOJ

Wednesday, 19 September 2001 12:00 AM

Forbes, the president of Forbes Inc., spoke at the Forbes Global CEO Conference, held for the first time outside the United States.

He said the Fed should not have tightened interest rates three years ago, should have loosened them at a much faster pace this year, and had made the mistake of keeping liquidity tight, up until last week's terror attacks on New York and Washington.

"The Federal Reserve is making the same mistake as the Bank of Japan," he said. "The same thing is beginning to happen in the U.S. It is cutting interest rates, but is keeping money supply tight."

After the terror attacks on the World Trade Center and the Pentagon, central banks around the world, including the Fed, have started to enable liquidity in the system. Central bankers acted in unison to stabilize financial markets, injecting more than $80 billion of short-term funds in the banking system to meet demands for cash.

As a rule of thumb to assess the appropriate level of liquidity in the economy, Forbes said, the price of gold should be higher than $300 per ounce, and should stabilize between $300 to $320.

Forbes pointed to three main reasons for the U.S. economic recession: the "mistakes of the Fed," the level of taxation and the rise in regulation in the high-tech sector.

Forbes argued that the Fed has been working on the "strange theory" that prosperity causes inflation. "Experience shows this theory is nonsense," he said, pointing to the 1980s, when the United States experienced a prolonged expansion period with falling inflation.

According to Forbes, the tightening of the interest rate led instead to deflation, with a shortage of money, which reverberated across the world, as 70 percent of all U.S. dollars printed in the United States leave the country.

Forbes accused the Bank of Japan for being "overly tightened." He said, "It needs to loosen policy if it is to avoid a meltdown of the banking sector in Japan."

In both 1996 and 2000, Forbes campaigned unsuccessfully for the Republican nomination for the U.S. presidency. His platform called for a flat tax, medical savings accounts, a new Social Security system and a strong national defense.

Forbes said the current level of taxation penalized Americans. Contrary to popular belief, he said, the recent tax cut was small. "The tax cut was like a cup of tea posing as a bottle of whiskey," he said. "Very weak in its impact."

Copyright 2001 by United Press International. All rights reserved.

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Forbes, the president of Forbes Inc., spoke at the Forbes Global CEO Conference, held for the first time outside the United States. He said the Fed should not have tightened interest rates three years ago, should have loosened them at a much faster pace this year, and had...
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2001-00-19
Wednesday, 19 September 2001 12:00 AM
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