Agustin Mackinlay
a.mackinlay@euruni.edu
Session 9 - March 27, 2012
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From balance sheet to income statement****: VIDEO
Interest rates, the economy and banks: CNBC VIDEO
Remarks by (former) Fed Chairman Alan Greenspan (April 5, 2000) [see]
As our experience over the past century and more attests, such surges in prospective investment profitability carry with them consequences for interest rates, which ultimately are part of the process that balances saving and investment in a noninflationary economy. In these circumstances, rising credit demand is almost always reflected in an increase in corporate borrowing costs and that has, indeed, been our recent experience, especially in longer-dated debt issues. Real interest rates on corporate bonds have risen more than a percentage point in the past couple of years. Home mortgage rates have risen comparably. The Federal Reserve has responded in a similar manner, by gradually raising the federal funds rate over the past year. Certainly, to have done otherwise--to have held the federal funds rate at last year's level even as credit demands and market interest rates rose--would have required an inappropriately inflationary expansion of liquidity. It is difficult to imagine product price levels remaining tame over the longer haul had there been such an expansion of liquidity.
Testimony of Chairman Alan Greenspan, July 18, 2001 [see]
The shortfall of saving to finance investment showed through in a significant rise in average real long-term corporate interest rates starting in early 1999. By June of that year, it was evident to the Federal Open Market Committee that to continue to hold the funds rate at the then-prevailing level of 4-3/4 percent in the face of rising real long-term corporate rates would have required a major infusion of liquidity
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