http://www.earth-policy.org/Updates/Update44.htm
How do these policy-induced changes in real interest rates affect the economy?Changes in real interest rates affect the public's demand for goods and services mainly by altering borrowing costs, the availability of bank loans, the wealth of households, and foreign exchange rates.
For example, a decrease in real interest rates lowers the cost of borrowing; that leads businesses to increase investment spending, and it leads households to buy durable goods, such as autos and new homes.
In the short run, lower real interest rates in the U.S. also tend to reduce the foreign exchange value of the dollar, which lowers the prices of the U.S.-produced goods we sell abroad and raises the prices we pay for foreign-produced goods. This leads to higher aggregate spending on goods and services produced in the U.S.
The increase in aggregate demand for the economy's output through these different channels leads firms to raise production and employment, which in turn increases business spending on capital goods even further by making greater demands on existing factory capacity. It also boosts consumption further because of the income gains that result from the higher level of economic output.
How does monetary policy affect inflation?Wages and prices will begin to rise at faster rates if monetary policy stimulates aggregate demand enough to push labor and capital markets beyond their long-run capacities. In fact, a monetary policy that persistently attempts to keep short-term real rates low will lead eventually to higher inflation and higher nominal interest rates, with no permanent increases in the growth of output or decreases in unemployment. As noted earlier, in the long run, output and employment cannot be set by monetary policy. In other words, while there is a trade-off between higher inflation and lower unemployment in the short run, the trade-off disappears in the long run.
Policy also affects inflation directly through people's expectations about future inflation. For example, suppose the Fed eases monetary policy. If consumers and businesspeople figure that will mean higher inflation in the future, they'll ask for bigger increases in wages and prices. That in itself will raise inflation without big changes in employment and output.
http://www.frbsf.org/publications/federalreserve/monetary/affect.html
FP: How does war spending exacerbate the economic downturn in the United States?
JS: To the extent that the war caused the price of oil to go up, and the fact that the war expenditures don’t stimulate the economy as much as domestic expenditures would have, the economy is weaker. The Fed has let forth more liquidity, which allows consumption to go up and savings to go closer to zero or negative. So, we have more of a mountain of debt in order to offset the negative effects of war spending, and that mountain of debt is now the problem we’re dealing with. There is a clear connection between the two. We’re spending money abroad that we could have spent at home.
FP: What’s your take on the Bear Stearns and Northern Rock bailouts? Would you have opposed them?
JS: No, but I’d make two points. One, given where we are, monetary policy is not going to reignite the economy. The only way monetary policy will reignite the economy is to reignite the housing bubble, and nobody wants that. So, we have to just admit that monetary policy is disengaged and all it’s doing now is preventing a further meltdown.
The Fed had no choice, in a sense. They did, however, have a choice of how they did it. And they did not do what they should have done, which is to minimize moral hazard. The shareholders of Bear Stearns walk off with $1.2 billion, and American taxpayers are now at risk. I think that’s unconscionable.
http://www.foreignpolicy.com/story/cms.php?story_id=4246
Do you need me to find more for you or do you want to start searching and educating yourself.
Also, you have failed to bring to anyone's attention as to what makes McCain a better candidate than Obama. The biggest thing I see hurting McCain is his party affiliation - if he was a Dem, he would win hands down. Albeit, is the most liberal conservative the republican party has seen; he is still a republican and once he is in office he, as I am sure Obama, will have "favors" to pay back to his consituents - i.e. - continuing the war in Iraq; War with Iran; keeping the tax burden on middle american's etc etc...
So you have no problem with warrentless wiretapping; even though it is in direct violation of the Fourth Amendment; it has been proven that several of the warrantless wiretaps had no relation to terrorist acts but were done for other alterior motives
