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!
To ALL...two sites any homeowner ought to follow daily for the best concentrated articles and commentaries on the middle class housing debacle, so entertwined by the games the Fed has played, can stay up to date with:
www.ml-implode.com
www.nychousingbubble.blogspot.com extremely valuable news reporting and analysis site
Unfortunately, you are quite correct. No dollar in the US in circulation at any time is there unless it was borrowed. When I was young, I recall Johnson celebrating the Great Society and the Consumer Society....we were to de-industrialize..I even knew then that this would end the US in decades in the same way that First World War British Admiral Jackie Fisher stated that the end of the British Empire was decided, and that it would end in about 40 years. When we stopped manufacturing things for ourselves we sealed our fate. Ironically, China has long admired the industrialization history of the US and is attempting to gain power and wealth as we did. We got tired of our own lesson. I took pride as a kid in the ‘made in the USA’ label. I take no pride in the US corporation Wal-Mart.
For the US to exist as an operating govt., as its citizens do not have the money with low wages inadequate for suitablae taxation or home ownership now, it must borrow (sell T-bills worth about $70 billion...national security depends on it. The fed, as a private corporation, has as of last week only some 300 billion in t bills left. China has close to 1.7 trillion US Forex dollars now, Japan just under a trillion, and EU about 400 trillion. We are intentionally poor and all must borrow to exist. Think about it.
It almost seems as if it was all orchestrated. If not, our leadership must be hell bent on committing national suicide.
Either way, it’s not good.
I believe it has been orchestrated. The US middle class is being terminially bled by the housing crisis and will not recover as a meaningful consumer class...it will merge with the lower economic class and compete with what is left of that class. China will not need us as consumers for their production as they are already committing to producing for themselves...that is what built America, and they have never been stupid or suicidal. Our leaders are not suicidal. They just do not consider nation-states as viable vehicles for their business purposes anymore..they are tired of the US electorate bothering them with its expectations. Controlled, administered trading regions, ‘company stores’ with workers in permanent debt is an old American model Tenn. Ernie Ford used to sing about. Central Banks were created specifically to serve nation states. They will be discredited as this crash cycle goes on, and the central banking systems stand to be absorbed by supranational hedge and sovereign funds which are rapidly developing with more capital than several G7 countries combined now. The Fed Reserve itself. is NOT Federal, it has no significant RESERVE itself. The US Treasury has a pittance. What the US has is unsustainable crushing debt it can not retire as it is not industrialized...a service econoomy is seeing its services, wages going to third world levels. Wages are going lower. Houses will not be affordable until their values fall to levels we can afford. That cannot happen until one half of equity values as of 2005 have fallen at least 50 percent. Think about what that means. The American middle class is in permanent debt, permanent bankurptcy. “Retool Detroit, reindustrialize America” is a campaign slogan we are not going to hear. The abililty of middle America to meaningfully retire debt is dead. Middle America could not live without borrowing from homes it can no longer borrow from and may no longer own for long. Middle America does bear responsibility for this themselves for allowing this to happen to themselves.
This is a list of countries by steel production in 2007 mostly based on International Iron and Steel Institute accessed in January 2008.
Rank by sovereign state Country/Region Steel production (million tonnes)
World 1,343.5
1 People's Republic of China 489.0
2 Japan 120.2
3 United States 97.2
4 Russia 72.2
5 India 53.1
yitbos
Not a fair comparison. Greenspan was a criminally negligent assclown who was personally culpable for the subprime crisis, while Bernake has shown excellent stewardship in his brief tenure, and deserves more time to establish his own legacy. Greenspan should be in Gitmo.
I thought he was OK until he married that Klinton acolyte commie Andrea Mitchell.
I wonder how many tons of stolen manhole covers, cemetery bronzes, copper pipe and wire are going to China...the total, if known might be astonishing.
Thanks for the figures. They speak for themselves. One of the most successful busnesses in my community not related to Wal-Mart is Harbor Freight...it has everything from China and Pakistan that you could use. Nothing in the store is made in the US. It is all tools, electric, plumbing, maintenance etc. Disgusting.
Production is not recycling.
Four Michigan Regions Rank in Top 25 of World-Class Manufacturing Centers
Detroit Picked as International Gold Medal Winner
--------------------------------------------------------------------------------
"In a study of manufacturing strength for its April 6 issue, IndustryWeek magazine ranked four Michigan metropolitan areas in the top 25 nationwide, labeling them "world-class manufacturing communities." To compile the report, the magazine analyzed a wide range of factors affecting productivity, competitiveness and growth in the 315 metropolitan statistical areas (MSAs) nationwide."
Thats just Michigan.
yitbos
Encouraging. More is desirable. The housing crash is devastating Michigan. Tax bases in the US are being impacted heavily now and, there are recent reports regarding food stamps in the US...MI..one in ten are on food stamps, Ohio...one in 8, and W VA one in 6....don’t know if these are true figures personally. Even if the industry in the US is high quality, there is too little of it. And, if there were more, are there enough literate graduates to fill more high quality industrial jobs? Time will answer all questions. A lot of good info comes out on this site and responses as yours is appreciated.
Common sense read IMHO. The Fed have only succeeded in delaying the inevitable pain while creating a commodity bubble in the process. If the dollar was still at par with the Euro, gas would be about $2.50 a gallon — that is an indisputable fact. The weak dollar is simply killing us, while idiots blather on about how this will help close the trade deficit. Stunning.
Recession now. Inflation later. It’s going to be fun...
Something is amiss deep inside their actions, thoughts and goals.
On another topic Robert Zubrin was on Coast to Coast last night. Zubrin is the author of 'Energy Victory' . . . He suggests that the OPEC is playing 'death by oil politics' by buying up food commodities. The oil cartel also owns our politicians, either directly or indirectly. Iran, Saudi Arabia, Venezuela et al are driving up world food prices in an unbridled economic war. They also own or are buying up the our media, banks, and every other profit making company in the U.S.
Did anybody else listen to him _________ ?
Agree with your thoughts completely! Households have and are depleting any wealth they ever did have for wide screen TV's and WII Systems.
I see no true recovery till the drug dependent admit they have a problem and their enabler's (gov’t & The Fed) stop enabling them. When that happens, commodities, along with health-care, education will fall to “true” market values.
SWEET! More "free" checks in the mail! Woo Hoo! /S/
Carolyn
Attempting to make money by cornering agricultural commodities (which become worthless if you don't sell them in a timely fashion, and there is always more where that came from, and even more still if you jack the price up) would be really dumb if we were not helping them out by burning it as ethanol.
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