Wishful Watching

People see what they look for.

Seek and ye shall find.

"Those who do not learn from history are condemned to repeat it." -- George Santayana

   For all the cheering that greeted the Federal Reserve Board's move to kick up interest rates, there were some hints that future economic performance could easily trip over international rocks in the road to recovery.
   There are two ways to read the Fed's move. One is to focus on a vote of confidence in the U.S. as a stand-alone economy immune to international variables. Another is to trust the growth signs but keep a wary eye on the world economy and the U.S. as a major player and part of a team.
   Consider this: Isolationism not only doesn't work, it is doomed to failure. The Smoot-Hawley Tariff Act of 1930 not only failed to rescue America from the economic doldrums of the Great Depression, but retaliatory measures by other trading nations worsened an already dire problem, and sent the world deeper into an economic pit.
   Read the U.S. central bank's announcement closely, and you will see caution -- the Fed vowed to monitor world reaction and to stand ready to retreat from its tighter move of this week and to ease its key interest rate back to its seven-year-old near-zero target.
   Look at it this way. A boost in the target range of only a quarter-point will take a long time to have any good effect, the Fed noted, and if the negative effect -- which is possible -- hits too hard, too soon, the central bank will return to its near zero rate for federal funds.
   At the same time, commercial lenders have been quick to hike the rates they charge borrowers -- the prime rate, available to the most credit-worthy firms, was boosted within hours of the Fed announcement. But these same financial institutions may well be quite slow to lower the price they charge if the Fed returns to its easy money window.
   So who benefits? Lenders.
  Who suffers? Consumers, as their borrowing cost fails to go back down.
   Profits to the financial sector will remain high, and consumers will be squeezed even more tightly.

   With luck, of course, the world economy will recover more rapidly and the U.S. will benefit by leading the pack. If not, America will be stranded, with no one able to buy its export products.
   Can the U.S. go it alone? Right-wing isolationists say yes, certainly, of course, it's America's destiny.
   Those who live in the real world know better.