Fuel, food, health insurance and unemployment (9.6% stated, 17%+ actual) are rising
- the government stopped counting 7.5% "frustrated workers", Who wouldn't be frustrated?
Incomes and house prices are falling
- when housing prices decline, consumers "perceived wealth or wealth effect" declines
- currently 24% of homes and the consumers attached to them - are "underwater"
Social Security income frozen - no increase
Some 40M Americans live in poverty (14% of all Americans, 20% for children under 18) or on food stamps (the modern day soup kitchen) are rising
- According to the OECD, only two countries have higher poverty rates: Turkey and Mexico (congrats Amerika)
Taxes are rising on the federal, state and local levels
The Federal Reserve is openly stating that it wants to ignite inflation by devaluing the dollar
- in reality they are simply propping up insolvent banks
- when housing prices decline in value, banks balance sheets suffer
- currently 24% of homes and the consumers attached to them - are "underwater"
Herein lies part of the problem. The Fed looks to a price gauge that excludes food and fuel costs.
However, consumers make spending decisions based on rising and falling food and fuel costs.
So right off the bat, there is a disconnect. Consumers see inflation and act accordingly by tightening their belts.
The Fed doesn't see inflation, so it ignores it as part of the problem.
To consumers, Price of Consumer Goods are the measurement of inflation / deflation.
To The Fed and the banksters, Asset Prices are the measurement of inflation / deflation.
Bank lending strategies are driven by their outlook on the direction of asset prices because it affects loan coverage and default risks which influences their capital ratio requirements. Is asset prices deteriorate - default risk rises - capital ratio requirements rise - lending falls.
Rising assets are a win / win for both banks and consumers in that they increase banks ability to lend. But simply pushing more "potential" money out there does nothing on the surface to create the incentive for banks to lend more, businesses to hire more or consumer to spend more.
Each constituency waits for a move to be made by the other, so everyone stands frozen.
The Fed is trying to engineer consumer spending by making people "feel" wealthier by artificially driving up the value of their 401K while consumer see the value of their most precious wealth assets, their home, plummeting in value.
It's a con game by any measure. And the main thing consumers are not seeing is their incomes rising. Their can't be an increase in spending without an increase in income. The Fed is putting the cart before the horse trying to engineer inflation to induce spending? That's economic insanity.
Can you say vicious cycle?
Are we heading in the right direction or the wrong direction?
For consumers drowning in debts, with home prices plummeting it seems as if these guys are throwing nothing but lead-lined life preservers.
From Marketwatch.com
http://www.marketwatch.com/story/consumers-paying-off-debt-not-likely-2010-10-13?dist=afterbell
Today, Bernanke said that even with all the measures these guys are taking to save the banks and the financial system, nothing that he is doing will help unemployment in the short-term.
Let's review:
NO HELP FOR THE UNEMPLOYED
NO HELP FOR HOMEOWNERS
NO HELP FOR SENIOR CITIZENS
ALL THE HELP IN THE WORLD FOR THE BANKSTERS
Sure, this plan will work. Why wouldn't it? ;)
The Federal Reserve's first round of Quantitative Easing did ease interest rates, which in theory made house more affordable.
The continuing unemployment made the lower interest rates moot since people either can't afford or do not have enough confidence to make such a major purchase.
So the money stayed (where it still resides) on the banks balance sheet
They are papering over they myth of a recovery generated when FASB 157 was effectively gutted.
We went back on mark to market accounting and back to the fairy tale, believe in the tooth fairy myth of mark to fantasy accounting.
And now QE2 will reinforce that and give us more of the same myths when what we need is a dose of reality.
This quote from the NY Federal Reserve's Brian Sack:
- QE “adds to household wealth by keeping asset prices higher than they otherwise would be…”
WE WILL ALL FEEL WEALTHIER AND SPEND OURSELVES FURTHER INTO DEBT IF WE JUST ARTIFICIALLY INFLATE ASSET PRICES HIGHER THAN THEY WOULD BE IN REALITY. GREAT!!! AN ECONOMY BASED ON FAIRY TALES AND FANTASIES.
Of course, this is a Federal Reserve that has not received as much blame as I believe it serves for getting into the mess we are in through its incompetence.
- Fed policy under Greenspan and Bernake created the housing and credit bubbles we are dealing with today.
- The Fed missed the boat on sub-prime lending
- they were wrong on the spillover effect into the general economy
- they failed to see the recession coming
- they failed to see unemployment rising to these levels
- which led to the near total breakdown of the financial system
If you give people "free" money, don't be surprised when they "spend" it, until they discover the economic principle known as TINSTAAFL ("There is no such thing as a free lunch).
Given the Fed's track record, why should they be seen as prescient now?
Some people in the financial markets wonder if the Fed is "running out of bullets", I worry more about them continuing to fire their guns. The economy can't take much more of their "friendly fire".
Further injections of money into the system appear to be a foolish exercise given the results of the last $1 trillion injection of QE1. We need only look to Japan for a textbook example of how a zero interest rate policy (ZIRP) or "free-money" has largely failed to lift Japan's economy out of the mud for the better part of two decades.
One can hope that all this talk of QE may be posturing by the Fed ahead of the November G-20 in S. Korea on exchange rates. A high stakes game of poker between central bankers. Convincing China and other major exporters to accept an upward revaluation of their currencies will not be easy. The Fed may be trying to force these countries to make an adjustment. The risk of failure could result in a trade war.
We could easily transition from a currency war (devaluations, beggar-thy-neighbor policies) to a trade war (tarriffs/protectionist policies) to a military war (bombs/guns) . Wars have been fought for less in the past. This is a very high stakes game the Fed is playing and the pot just got very big.
The stock market of course cheers the "free" monopoly money the Feds provide much as a crack-whore cheers free crack from a drug dealer.
- we are in the throes of a stock market "bull rally". Some see this as a stock market "BS rally".
Time will tell who is right and who is wrong. The Fed can print money but it hasn't translated into jobs because banks aren't lending. And consumers are not willing or able to borrow. I can't blame either party for acting as the are currently. It seems like the Fed is sitting there, like the devil, encouraging both parties to continue their previous reckless ways when they know it would be wrong and harmful to do so.
I'm not sure how given the recent "Forclosure-gate" disclosures and how interrelated declining house prices are to the declining health and welfare of both banks and the consumer are, that another round of QE2 does nothing more than kick an already well-kicked can further down the road. We need a program that creates jobs, not one that brings a dollar that is already "worth less" closer to one that is "worthless".
Given some of the comments from other members of the Federal Reserve, it does not seem as if there is unanimity of opinion within the Fed on the wisdom of proceeding down this path. A few have openly questioned the direction Bernanke seems to want to take.
I found this quote from a from a former Fed-head rather telling:
From Bloomberg:
http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=ayMiHOOvieuo
“It’s pretty much a crapshoot,” former Fed Governor Lyle Gramley, now senior economic adviser at Potomac Research group in Washington, said of using an inflation target to support prices. “We don’t really have any background of history to know how it’s going to work.” Still, “it’s worth trying.”
WOW!! We're risking our economic future, as well as that of our children and grand-children on a crapshoot? Are you kidding me?
And it seems as if we have a degenerate gambler running the Federal Reserve?
STOP THE INSANITY!!! The definition of which is doing the same thing over and over and expecting a different result.
The phrase I keep hearing people of all stripes saying is "This will not end well".
No comments:
Post a Comment