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Before the Fed cut interest rates by a half a point Tuesday, this author pointed out a few interesting facts....
Consider this: In 2000, when Bush took office, gold was $273 per ounce, oil was $22 per barrel and the euro was worth $.87 per dollar. Currently, gold is over $700 per ounce, oil is over $80 per barrel, and the euro is nearly $1.40 per dollar. If Bernanke cuts rates, we're likely to see oil at $125 per barrel by next spring.
Inflation is soaring. The government statistics are thoroughly bogus. Gold, oil and the euro don't lie. According to economist Martin Feldstein, "The falling dollar and rising food prices caused market-based consumer prices to rise by 4.6 per cent in the most recent quarter." (WSJ)
Rate cuts won't help to rekindle the spending spree in the housing market either. That charade is over. The banks have already tightened lending standards and inventory is larger than anytime since they began keeping records. The slowdown in housing is irreversible as is the steady decline in real estate prices. Trillions in market capitalization will be wiped out. Home equity is already shrinking as is consumer spending connected to home-equity withdrawals.
The bubble has popped regardless of what Bernanke does. The same is true in the clogged Commercial Paper market where hundreds of billions of dollars in short-term debt is due to expire in the next few weeks. The banks and corporate borrowers are expected to struggle to refinance their debts but, of course, much of the debt will not roll over. There will be substantial losses and, very likely, more defaults.
Bernanke can either be a statesman---and tell the country the truth about our dysfunctional financial system which is breaking down from years of corruption, deregulation and manipulation---or he can take the cowards-route and buy some time by flooding the system with liquidity, stimulating more destructive consumerism, and condemning the nation to an avoidable cycle of double-digit inflation. Link
Well now we know, at least according to this author, Bernanke took the "coward's way out".
Then the ultra-conservative Wall Street Journal says this yesterday....
The dollar sank against other major currencies in international trading Wednesday, as the Federal Reserve's sharp interest rate cut overnight eroded its yield advantage and fueled concern that the U.S. economy's outlook may be gloomier than expected.
The dollar dropped to a record low versus the euro, rising as high as $1.3987 in morning European trading before settling back to $1.3981, above the $1.3971 it bought in late New York trading the night before. The U.S. currency fell below $1.0100 against the Canadian dollar for the first time in nearly 30 years. The British pound rose higher against the dollar, too, reaching $2.0157, slightly above the $2.0131 it fetched late Tuesday in New York.
"Some players are wondering if the Fed's decision suggests that the U.S. economy will go from bad to worse in the near future," said Michiyoshi Kato, a senior trader at Mizuho Corporate Bank. "If that is the case, it's very difficult to buy the dollar now."
Finally, comes a blog piece reviewing what the FED has been saying each month this year about inflation being their main concern. The blog concludes thusly....
In other words, enough indicators have turned negative in the last month and a half to warrant exposing the economy to a higher-inflation monetary policy even at a time when the Fed is concerned about increasing inflation. Link
Now my take. In today's America perception is everything. Tuesday's rate cut made the Dow go up 2 1/2%. The gambler's had a holiday, as it were. That's all that mattered. The spirits of ignorant Americans were lifted. The Dow went up some 338 points.....the economy must be good.
No matter that the FED wasn't really helping the economic sickness America has come down with, instead, they only covered up the symptoms, temporarily.
Scam the dummies, get what you can get while the getting is good and to hell with what happens tomorrow. Helluva way to oversee the world's biggest economy.
Then there's this....
"The full faith and credit of the United States, to which we all remain committed, is a national asset and a cornerstone of the global financial system," Paulson said in his letter. "In light of current developments in financial markets, which would be exacerbated by uncertainty in the Treasuries market, I urge the Senate to pass the legislation reported by the Finance Committee to increase the debt limit as soon as possible."
The Senate Finance Committee earlier this month approved increasing the limit on the national debt to $9.82 trillion. That boost of $850 billion would be the fifth increase in the government's borrowing limit since President Bush took office in 2001. Link
It all kinda, sorta looks like a big accident waiting to happen. So much for Republicans and their fiscally conservative slogans. When Republicans run an economy, they run it straight to ground.....everytime.
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