The day before yesterday the Consumer Price Index dropped 1.7%--a "record". Fox News (my opinion of which as a "journalistic" organization gets worse every single day), and the rest of the mainstream media, treated this as BAD NEWS. I kid you not. These are the only competitors Wall Street has for the stupidest people on Earth (again including Fox News as part of the problem and not part of the solution). I heard the Fox News radio report right after this "deflation" news came out, and you would have thought the world was ending--the report was that downbeat over what was actually GOOD NEWS.
But the Wall Street, Henry Paulson/Ben Bernanke branch of the stupidest people on Earth was not to be outdone. The Fed, that same day, panicked again, and reduced "interest rates" to ZERO, Of course, if you look at your credit card statement, you will realize interest rates are not zero to you. This is the rate the Fed is charging financial insitutions--a massive subsidy with limited real economic impact. Banks do not have to key there credit card interest rates to the government (although there is definite movement toward requiring the banks to do what the government wants: Did the government not bail them out?). The Dow went up 360 points--again showing that Wall Street people are the stupidest people on Earth), although you are deluded if you think rational optimism on the economy was the "reason" The reason was computer program trading, for which the Fed move was only a trigger to get the computer programs going in that direction (these computer program generated, irrational, wild market swings being a conclusive sign of very sick financial
markets--a sickness no one is even trying to fix).
Yes, you can look at the archives of this blog. This blog was absolutely right (again) as to the previous oil price "bubble", when oil went to $140.00 a barrel (even if this blog was slightly overoptimistic as to how soon the bubble would burst--labeling it a "bubble", accurately, even as oil reached $100,.00 a barrel even though the price would go highter). The way the "news" presented the CPI drop of 1.7% was absurd--as if most, or even almost all, of that "record" decline were not the result of the overdue bursting of the oil price bubble. The price of oil dropped below $40.00 a barrel today ("deflation"), and (message to the bozos at Fox News) that is GOOD NEWS. Yes, I say that even though I recognize, as most of the mainstream media does not, that the energy industry is part of the economy. People who work in the oil and energy industries have jobs, just like other people. Still, the price of oil was out of line. It will probably go too far on the downside (which is why we should use this time of falling prices to authorize drilling offshore, and in ANWR, to avoid future oil spikes UP). Banks--stupid as they are--can get in trouble because of too many loans based on the oil price "bubble", just as they got in trouble with the speculative, leveraged investments based on the housing price "bubble".
Yep. That is another reason for the drop in the CPI: the inevitable bursting of the housing price "bubble". Because of government policy encouraging everybody to buy a house, and discouraging saving, house prices went up too far, too fast. People overextended themselves on credit, and bought things (including houses) they could not really afford. Banks and financial institutions joined the party and made credit available to almost everyone, without regard to whether people would be able to repay the money if--for example--their house went down in value and they could not sell it.
I want you to read the above paragraph, and then consider Henry Paulson, Ben Bernanke, and our present politicians. Have we we learned our lesson? Don't be silly. Paulson and Bernanke had two years to avert this "crisis" (instead of helping create it with panic), and they failed (the worst failure in the history of world finance--on their watch and because they failed to see what was clearly happening, despite numerous warning signs). Now Paulson and Bernanke, along with our politicians, are showing that their previous failures were no fluke. They really are that stupid.
What are Paulson and Bernanke telling banks and financial institutions? Right. They are telling them: LEND, LEND, LEND. Do they seem to care much how qualified the borrowers may be, and whether they can really pay back the money? Nope. They don't seem to care, which is just the attitude that got us in this situation in the first place.
And what is the Paulson message to consumers, as he tries to artificially lower mortgage interest rates so more people again are lured into buying houses (whether they can afford them or not): SPEND, SPEND, SPEND. What about this idea that Americans became too addicted to credit, and do not save enough? Forget it. Paulson and Bernanke have their (non-existent, except in a negative sense) "reputations" to consider. People need to SPEND to bail out Paulson and Bernanke from the inevitable verdict of history that they are the worst failures in the history of world finance.
Instead of refusing to panic, and setting up the economy on a more sound basis, we are repeating the exact same mistakes that got us into this mess: the central planning idea that short term government action can guarantee long term prosperity--an attitude that merely results in every "crisis" being worse than the one before, until the house of cards collapses for good. So instead of encouraging saving and responsible borrowing (and lending), the government is promoting the creation of more "bubbles" by attempting to "reflate" the economy with irresponsible spending: by the government and everyone else. Sometimes, I wonder how the parts of the brains of these "Wall Street" (present day Wall Street communists) can exist in the same head without the head exploding. These people are capable of bemoaning how little Americans save, and then turning around, in the next breath, and saying that the consumer has to SPEND, and banks have to LEND (responsibly or not).
You doubt the last statement? You fool you. Just look at the auto industry, and the other bailouts. Do Paulson, Bernanke and the politicians care whether automakers are good credit risks? Do they care whether AIG was a good credit risk? Nope. First, they tried to get private capital to make loans/investments in all of these risky companies, and finally they propose for the government to do it. This is exactly the wrong message, and the philosophy that got us where we are. That is why Paulson,, Obama and the rest are proposing to "stimulate" the economy, with short term measures, into further "bubbles".
That is why, unlike the mainstream media, I correctly tell you that it is BAD NEWS when the Dow goes 1,000 points in a single day, even though it is good news (usually) if the Dow goes up 50 points. That is because that kind of irrational market move, of which there have been many lately, indicates that the "bubble" creating philosophy is still with us. Remember when the bursting of the dot.com "bubble" was supposed to have taught us a lesson about "bubles" and "irrational exuberance"? LOL. It taught us nothing at all, and this latest "crisis" appears to be even less likely to teach us anything--considering that we are repeating the same mistakes before the crisis is even over.
I am perfectly aware that "deflation" was a result of the Great Depression, and that long term deflation is surely almost impossible in a healthy, growing economy (which is not to say substantial inflation is necessary). But short term "deflation", mainly caused by bursting "bubbles" in commodities and housing, is not "bad news" (although the inevitable decline in "bubble" housing prices was not "good news" for the economy, and even the decline in commodity prices has a downisde). The decline in commodity prices is actually an enormous stimulus for the rest of the economy, so long as we do not destroy the benefit by panic. Short term corrections in "bubble" prices are a good thing. It is the long term philosophy creating the "bubbles"--without understanding the consequiences--that is the problem. It is that mistake that we are repeating, before the old mistake is even in the past.
Yes, some short term measures are in order. But short term, central planning measures trying to recreate the "bubble" philosophy are not the answer. We should be encouraging people to act rationally, and save for what they want (instead of relying on credit they can't really afford). We should be dropping tax rates PERMAMENTLY, so that we have a tax system for the future--dropping tax rates for people who pay taxes, instead of treating the tax system as a welfare system--including a welfare system for the lower "middle class" who pay no income taxes. We should go back to Regan's three tax rates (0, 15%, and 28%). I would not oppose dropping that middle rate to 10%, if you "insisted" on giving the "middle class" a break. The corporate rate should be dropped to 28% as well. The capital gains rate should remain at 15%, simply to discourage game playing for tax reasons. If we showed no panic, and moved toward a sound, long term system, we would be fine.
I would combine the above with an attempt to fix the broken financial markets by trying to stop the present "computer gaming" model that we have developed. I would eliminate "day trading" (buying and selling the same stock on the same day), and short selling (while keeping options trading),. There may be other things to be done to correct this domination of financial markets by computer program trading. Whatever needs to be done, something needs to be don. Yet, Wall Street has successfully opposed limiting the "free market" in trading, even at the cost of turning our economy socialist (Larry Kudlow, this again means Y:OU). And you wonder why I label these people "communists", and the "stupidest people on Earth"!!!!
Yes, the Fed needed to lower short term interest rates, even though this massive stimulus all over the place should--in a rational world--actually increase long term interest rates. In the end it will, and even now the attempt by the Fed to force down all interest rates, and to force lending, is doomed to disaster. The dropping of the Fed short term rate to zero is a panic stunt, without a likely positive result. Real interest rates in the economy will not be directly affected, and the Fed risks losing all control of the "bubble" it is trying to recreate in "reflating" the economy and again encouraging an attitude of unlimited credit.
FDR: "We have nothing to fear but fear itself." With Paulson, Bernanke, and our politicians in control, and acting totally from fear, that means that we should be very fearful
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