Cato Daily Dispatch for August 9, 2005
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Interest Rates Expected to RiseBush Signs Energy Bill
Iran Resumes Nuclear Work
Interest Rates Expected to Rise
"Oil prices are surging and wages are growing at the fastest clip in a year, reasons enough for the Federal Reserve to keep pushing interest rates higher the rest of the year and probably well into 2006 in an effort to keep inflation in check," reports the Associated Press.
"The Fed is expected to raise short-term rates a quarter-point today, the 10th increase since June of last year."
In "Deficits, Interest Rates and the Fed," Cato senior fellow Alan Reynolds writes, "As the Federal Reserve finally begins to raise interest rates, those who have been patiently waiting to find some connection between budget deficits and interest rates naturally seized this opportunity to suggest it is the budget deficit rather than the Fed that is really to blame.
"Never mind that the Fed also raised interest rates when the budget was in surplus, in 1999 and 1969, and the effect was the same. A stubborn fiscal fixation nonetheless causes some people to insist the budget deficit, not the Fed, is somehow responsible for raising the interest rate at which the Fed stands willing to buy Treasury bills with new money."
Bush Signs Energy Bill
"On a day when oil and gasoline prices hit record highs, President Bush on Monday signed into law a bill that encourages increased domestic oil and gas production and the building of new nuclear power plants. It also creates incentives for alternative energy sources and requires modernization of the nation's electrical grid," according to the New York Times.
In "Energy Bill Blues," Jerry Taylor, Cato's director of natural resource studies, and Daniel Becker the Sierra Club's director of Global Warming Program, write, "We think it's time for both liberals and conservatives to rethink the energy subsidy arms race. Policymakers should free the energy industry from dependence on government, get rid of energy subsidies and let the best fuels and technologies win.
"Why should liberals cut off clean-energy subsidies? Because that's a small price for ending the enormously larger handouts that drive destructive drilling, mining, polluting power plants, and gas-guzzling pickups and SUVs. Why should conservatives eliminate incentives for more oil, gas and nuclear energy production? Because with energy prices so high, subsidies simply aren't needed to encourage investment in new supply."
Iran Resumes Nuclear Work
"Iran resumed uranium-conversion activities at its Isfahan nuclear facility yesterday, breaching an agreement with European countries in an action that Western nations have said could lead them to seek U.N. sanctions against Tehran," the Washington Times reports.
The article continues: "The United States will consult with its European allies before deciding whether to refer Iran to the United Nations Security Council, State Department spokesman Adam Ereli said in Washington."
In "Iran: Isolation or Engagement?" Cato's director of defense policy studies Charles Peña says that "Iran is considered a long-standing nemesis. But that doesn't automatically make it a grave threat."
"Efforts to convince the Iranians to give up their quest for nuclear weapons should not be abandoned, but success in that long-shot strategy cannot be the only acceptable outcome," Peña adds. "Other options must be explored, such as how to limit the size and scope of Iran's nuclear weapons program and arsenal so that it is not a direct threat to the U.S., and ensuring that weapons, materials, and technology are not transferred to terrorists."
Holiday Dmitri, editor, hdmitri@cato.org
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