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| Should anyone believe the Fed? |
| Thursday, February 28, 2008 |
The economy is absolutely going to experience major problems over the next four years and possibly beyond. This is a recession that could could resemble the recession of the 70s - and it is hard to see a silver lining around this cloud, that for many people will offer misery. The Federal Reserve is called before Congress to provide reports on what the economy is doing and how the Fed is acting in the best interest of the nation. (Or something like that .) The decision that the Fed makes will and do effect everyone, in fact the decision made at the Fed have global implications. The main stream media always covers this event and play snippets on TV. The should just play the whole thing. The Federal Reserve decisions are as important as any election. The decisions and actions of the Federal reserve can make or break any political initiative, because the government always needs money to do things.
Below are links to articles from the last few years where the Fed is letting us know how thing are going to be and how programs are working. These are articles and not the actual Fed reports, but it makes one wonder about the clarity of the communication being provided and if the main stream media is competent in evaluating the facts before editor release the articles. Keep in mind that economists are trained to see the big picture and, one would assume, that the Congress would be asking questions of the Federal Reserve about long-term (5 to 20 to 50-year) implications of the current conditions.
These article below seem to indicated contradicting information or simply misleading information and, whether by intent or ignorance, the information is not helpful, if it fails to communicate the critical and dire truths about our state. The headlines below seem to contradict each other as do the articles, which indicates a grand problem in communication and that Bernanke of the Federal Reserve is being far (very far) from "transparent". Indeed it seems as though a good bit of double-speak is underway. The man is in a difficult position, indeed.
(For your convenience, these articles will open in a separate window.)
Some Small Banks May Go Under - Feb 28, 2008
Bush, Fed Chief Sees No Recession Ahead Feb 28,-2008
FED FOCUS-Bernanke gives nod to recession, without saying word- Feb 28, 2008
Bernanke Not Worried About Market Drop - March1, 2007
There shouldn't be this kind of confusion on a matter. when direct questions are asked about quantitative issues. While it is understandable for their to be disagreement on what the values mean, either the questions are not being answered in a straightforward manner or the wrong people are asking the question - what is the point of these kangaroo proceedings. How can the legislature and the citizenry assess the efficacy and implications of the Fed decisions if the agency in charge of making the decisions and analyzing the data associated with those decision is playing hide and seek with the information.
My take on it is this:
With low interest rates (and the interests rates are low compared to 20 years ago) the economy should be roaring. But is not. This is not a bull market and the consumer driven portion of the economy is facing a real threat from lack of credit. Many households, particular those who have the sub-prime loans, will find their purchasing power further diminished over the next two years and the credit that they need to function under the system we have now wil be injured for 7 years.
Banks will be tentative about issuing credit. Banks need to be tentative, however, banks revenues are largely derived from repayment of debts issued. The banks need to issue debts, yet the interest rates as low as they are in a period of economic uncertainty and the recession that we are in (the signs are there) will make the risk vs. benefit associated with the lending, increasingly less rational. There is less to gain and the same amount to risk.
Neither the Democratic and Republican candidates are making a the economy the central issue. The Dems want to add a new entitlement program and reduce the amount of capital moving through the top of the economy, by rescinding tax-cuts and extending more healthcare to the public. (Which represent a great platform for acquiring the working class vote) and the Republican want to keep on marching down the same path.
A plan to issue a moratorium on foreclosure, simply delays the inevitable. If the government steps in to perform the bailout it encourages the same bad behavior to happen again and again and again. Take the example of the airlines and auto industry - the bankruptcy protections, negative feedback interruptions issued have not resulted in solutions to the underlying problems. The fed has performed a massive bailout for a number of industries by reducing interest rates an creating cheap money. The consequences of cheap money are what the Fed and the government are trying to contend with now and contribute to the rise in consumer prices for commodity goods and imported goods as well. Were it not for Wal-Mart many people would buy far less than they presently do - unfortunately Wal-Mart also helps them lose their jobs.
Something has to be done, but the somethings that are being suggested look like actions that will make the problem more severe when it fully returns. And, it will. |
posted by Domesticated Dog @ 10:51 PM  |
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