| aug 29 2007 | | Fed Rate. | With the markets in turmoil the debate rages over whether the Fed should raise or lower the Rate. They did something sneaky with a cut in the discount rate for the banks to use. This was in answer to a desperate plea from the financial industry for more liquidity. Seeing as how it was an excess of liquidity that caused all the problems and it was the Fed under Bubbles Greenspan who engineered it, this is akin to caving in to a junkie who asks for just one more fix. As we know a junkie will lie, plead, promise and wheedle to convince you to indulge them in one last shot. Really! Are we going to put the financial industry on its own equivalent of welfare and bail it out every time it makes imprudent commercial decisions, or are we going to make them face the consequences and allow the weaker players to go to the wall?
So back to the Fed. It is between a rock and a hard place. It can raise interest rates and stifle industry put more people out of work, cause the dollar to rise making exports uncompetitive, or it can lower rates, admit that it has no interest in controlling inflation and allow the dollar to sink. Either way the economy will be hurt. The official position is to allow the dollar to drift lower so making the enormous unmanageable mountain of debt shrink. The dollar is going lower anyway so at least they can claim credit for something that did go the way they predicted. Nothing else is going to plan.
The Fed’s duties are the pursuit of maximum employment, stable prices and moderate long-term interest rates. They are responsible for the safety and soundness of the financial system. To achieve their objectives they have two tools at their disposal. They set the short-term interest rate and they print money. By increasing liquidity over the years and causing inflation they have created a climate for industry where outsourcing to other countries makes economic sense. Not good for maximum employment. Neither good for stable prices of domestic goods and services.
Take a visit to shadowstats.com to see the real state of America. Or listen to the words of the Comptroller or Congressman Ron Paul. In the real world inflation is running at three times the official figure, unemployment at least the same and real wages have been falling for many years.
So should the Fed raise or lower rates. Frankly it doesn’t matter; the results of deflation, stagflation or hyper-inflation are same for the average Joe. The end of this wave should happen around 2015 with the complete collapse of the American Empire. In between we will have some good years and some bad years. Buy gold.
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