Posted on 04/29/2008 8:10:39 PM PDT by bruinbirdman
U.S. Treasury Secretary Henry Paulson's blundering is becoming more breathtaking with each passing week. At the end of March he rolled out a grand plan to crown the Federal Reserve as the nation's new financial stabilizer. The Fed a stabilizer? That's who created the financial mess we're in.
If this wasn't bad enough, Secretary Paulson then donned his cheerleader's uniform and encouraged Beijing to let the Chinese yuan appreciate against the greenback. All the while favoring in this fashion a debasement of the U.S. currency, Paulson proclaimed that we should remain calm and confident because the economic fundamentals are sound. He reminds me of the stockbroker who performed a valuable service to his partners by always being wrong.
During the Greenspan-Bernanke era the Fed has embraced the view that stability in the economy and stability in prices are mutually consistent. As long as inflation remains at or below its target level, the Fed's modus operandi is to panic at the sight of real or perceived economic trouble and provide emergency relief. It does this by pushing interest rates below where the market would have set them. With interest rates artificially low, consumers reduce savings in favor of consumption, and entrepreneurs increase their rates of investment spending.
And then you have an imbalance between savings and investment. You have an economy on an unsustainable growth path. This, in a nutshell, is the lesson of the Austrian critique of central banking developed in the 1920s and 1930s. Austrian economists warned that price level stability might be inconsistent with economic stability.
They placed great stress on the fact that the price level, as typically measured, extends only to goods and services. Asset prices are excluded. (The Fed's core measure for consumer prices, of course, doesn't even include all goods and services.) . .
(Excerpt) Read more at forbes.com ...
Ping.
I go out of my way to take the time to find and read this writers work. High scholarship level...he has his pulse on much more that presented here, and his papers are worth seeking out on banking, financial subjects.
Economic stimulus program....a joke.
I appreciate your seafaring metaphor.
Saying “our economic fundamentals are sound” doesn’t make them so.
The wind in the wires made a tattle-tale sound
and a wave broke over the railing.
And ev’ry man knew, as the captain did too
‘twas the witch of November come stealin’.
The dawn came late and the breakfast had to wait
when the Gales of November came slashin’.
When afternoon came it was freezin’ rain
in the face of a hurricane west wind.
A CATO Institute label ruins credibility. In the past decade, they have advanced some economic theories that are borderline wacky. And this is not helped by the near-cultish nature of their followers.
Economics is truly not based in philosophy, even if that philosophy is laissez-faire. A better comparison is to a melee of combatants—a vast number of battles with winners and losers, casualties and exhaustion, experts and novices, brief partnerships and animosities, and far too few referees.
The chaos of the market is based in thousands of strategies by all its players, carried out in parallel, and adjusting with every second. This is why market philosophies rarely last—because such strategies are taken into account by those plotting counter strategies.
Some have heard the philosophy. Many haven’t. Most disregard it, have their own philosophy, or want to be where the action isn’t. New ideas work for a few, then fail when tried by many hoping for the same result. It is a place of conformity, contrariness, independence, the following of old and discarded ideas, and novelty.
Just like a melee. And just about as fast.
Only losers hold on to a philosophy once the market has moved on.
I don't think we're headed into a recession. But there's no question we're in a slow down and that's why we acted with over $150 billion worth of pro-growth economic incentives, mainly money going into the hands of our consumers... The purpose is to encourage our consumers - to give 'em money - to help deal with the adverse effect of the decline in housing values.~~President George W. Bush, Feb 28, 2008
“As if their “economic stimulus” package is going to fix anything. What about AFTER that?”
Double it every month until the problem is fixed. Worked in Zimbabwe.
I went through the Carter years with its 17% interest rates. Someone then penned a similar metaphor, "The ship of state is awash in a ranging sea of paper money and it's captain is using the rudder as a paddle."
Both are accurate.
Said like a true quant guy. Got some algorithms for the chaos to four deviations?
yitbos
I don’t understand what they are doing with the checks. Granted it will help those on the edge for a couple of months. I would hope the energy companies now have enough to go after shale reserves and the like. Being dependant on imports for what, 66%.. is ridiculus.
When they report low savings rates for Americans are they discounting or ignoring IRAs or other pension plans?
A couple of months? Maybe in the 1980s it might have. What $600 bucks buys now is 3 tanks of gas and 3 trips to the supermarket if your lucky, and have few to feed.
How these people are surviving that have to commute long distances everyday, I'll never know. No doubt they're becoming unhinged when they see the price of fuel rising everyday.
I do not think so. Savings essentially do not exist for the middle class. The wealth of the middle class is essentially in its homes. The collective value of all middle class homes as of last fall was about $20 trillion with one third of homes owned with no first mortgage. However, 2/3s of homes have a first mortgage, and a large percentage of these have HELOC or second mortgages as the middle class wages for the last 20 years have not kept up with inflation or home price rises. People have been borrowing from their increasingly valued homes to supplant inadequate wages. Without housing values rising, being in a free fall currently, which will fall back to where the rise started, means that homeowners cannot borrow from their homes, their only equity, to make up the difference in money required as their wages have not risen with inflation, which is in actuality much more than the govt reports with its fictitious figures (gas and food are NOT included in the inflation calculations!). Their credit cards are maxed out now and the crash of the credit cards has not played out. It is just beginning.
Now, with credit cards maxed out, credit vanishing quickly, middle classers are CASHING IN their 401K plans, IRAs with withdrawal panalties in increasing numbers every month. Investors are withdrawing from mutual funds in record numbers now also...middle class needs CASH they can no longer get from their home as it it now below first or second mortgage values..hence the subprime, ALT-A, Prime real estate crashes going on simultaneously with no end in sight for some years yet.
Middle class should lose one half of its home equities ...that is right...TEN TRILLION within the next couple of years. Profoundly, the middle class will cease to be a significant political force in an independent way because they have lost their property and wealth that defines political power these days. The matter of discussing US savings rates, their history, their present state, and their future involves much more than I can possibly discuss.
Well, I lucked out on timing and went from 500mi a week to 30 and it is a huge difference. The ones stuck with that commute is the majority. Washington needs to go ahead and move forward with our oil possibilities including Canada and Brazil. The EPA will become extinct with these costs.
What is so terrible about not being able to borrow unless one can qualify?
Let them pay cash for about five years.
yitbos
The system is set up for the credit scam. Ya think anyone is going to be purchasing televisions, new trucks, furniture or home additions with cash? Ya seen the prices of everything nowadays?
If everyone stops using credit, and stops borrowing, you can expect this economy to cart wheel back into the dark ages rather quickly.
yitbos!
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.