Saturday, August 09, 2008
I Be Living
So let's see how close I come. I've got Fed Funds rate between 1.25 and 1.50% by the end of second quarter 2009, and that's the low with any luck. And believe me, we are about to get some luck delivered to us by ECB. What WAS Trichet thinking?
Hope you're feeling OK.
I have a question: why do Central Bankers think that increasing the price of short term money is the answer to the problem of generally increasing prices caused by generally increasing commodity prices?
This has me lost.
Also, is there a Central Banker's decoder ring I can get somewhere?
Trichet, like Bernanke, speaks of “downside risks” to growth.
When we get into a full-fledged depression (which seems possible, especially if Hank Paulson keeps fixing stuff), will they be speaking in terms of "negative growth"? Will the economy be "expansionally challenged"? Or just "differently sized"?
In any case, we peons will only get to observer.
IMHO you cannot have a depression unless you are on the gold standard. Otherwise, as long as you funnel money to folks that will spend it, you can avoid a real depression.
But also like being handcuffed by the gold standard in the 1920s, our current administration is handcuffed by ideology so that it may not take the actions needed and instead funnel money to those who will not spend it. Just like the 1920s Hoover admin.
In brief, a real depression is unlikely, but never fear, some folks are working on it.
Vader & Bob - astute observations. Raising financing costs can only curb internally generated inflation. They do nothing to correct externally generated inflationary pressures - instead, they magnify the effect on the internal economy.
If the ECB wanted to curb inflation, the correct fix would have been to take off the extra VAT & energy taxes generated by the external cost increases. That way, they would have immediately cut off some of the bottom level price increases, plus it would have left tax revenue basically almost the same. It would have been far cheaper in the long run, and would also have done more to support the Euro.
I think the ECB's real desire was to displace the USD as a world reserve currency, but they took the wrong way to get there. You don't achieve that goal by short term objectives - you have to manage the economy and the currency to generate a long track record. The ECB has created a wholly unnecessary sharp European recession.
Vader - you have got to look at not just this administration but the one preceding it. I agree that we are suffering from cant - unexamined economic aphorisms - but the bitter truth is that both the GOP and the Dems have contingents spouting the same cant. You know who looks sane about now? Bernie Sanders, the Vermont Socialist. He's the one who is concerned about people trying to make a living. Of course, not everything he recommends will work. But at least he sits down and recognizes that there is a problem, and tries to figure out how to deal with the real problem. I recall reading an enraged diatribe by a Republican legislator on the effects of the corn ethanol program before it was passed.
There are realistic politicians out there. We have to find them. Right now Washington politics appears dominated by people trying to solve problems that don't exist at the expense of the average citizen.
We have got to wake the DC crew up and get them to focus on real problems. This winter is going to be a total nightmare for a lot of families. The faked CPI numbers (a Clinton-era innovation) are inflicting brutal pain on 2/3rds of SS recipients. We cannot solve our fiscal problems by abusing the population.
And now, the consumer spending bust HITS. Big time.
Links to this post: