Flunking the Fed
Grim day yesterday, as oil rose into the stratosphere and stocks took it on the nose. Just to put things in perspective, we are now on track for the worst June on Wall Street since the Great Depression. What’s really scary here is that it’s not just oil prices that are driving this; the market was also reacting to clear signals that the credit crisis (which bankers were so eager to assure us was now behind us) remains in its early stages. Worse, Fed chairman Bernanke is clearly floundering amidst the crisis that Greenspan spent his entire career postponing. Barclays Capital warned its clients yesterday that central banks have flunked their “first major test in 30 years”, and that their pumping of money into the economy has given them “zero credibility . . .and the Fed has negative credibility, if that’s even possible.”
Harsh words. Maybe too harsh, given that it’s not just the Fed’s fault. The stupidity of the much-vaunted stimulus packages passed by Congress and signed by the Prez this past spring is now manifest: at best that stimulus had no impact; at worst, it persuaded just a few more debt-stricken consumers to stagger to their local Circuit City for a TV they couldn’t afford. We’ve been sleepwalking for so long; what’s ten more minutes after you’ve already hit the snooze button fifty times? But unfortunately the scene now is like that at Arthur Dent’s house in Hitchhiker’s Guide: the bulldozer is right outside the window, and it’s about to come crashing through. Royal Bank of Scotland just issued a warning that the “chickens are about to come home to roost”, and that by September the markets will be in full, devastating retreat. It’s hard to see how that scenario can be avoided now.
Meaning that the Fed will be confronted with the dilemma they’ve been so desperate to avoid for so long. Raising interest rates offers the only hope of stemming the runaway inflation that rising oil and commodity prices are threatening to unleash. But the impact on the long-deluded American consumer will be nothing short of catastrophic . . and that’s a word that I fear we’re going to hear a lot more of in the weeks and months to come.
Tags: bernanke, books, economy, fed, future of war, Mirrored Heavens, novel, science fiction, scifi, SF
June 27th, 2008 at 12:35 pm
I think our monetary policies have been atrocious over the last few years, and I am horrified by the blase attitude in the Administration and the Banking sector.
Bernanke stated shortly after he took over that he would not be lowering interest rates and gave a clear, concise set of reasons for it. Why, then, did he roll over the first time the Bush administration said “Heel”? Why did Greenspan, who had no reason to do anything other than what was best for the economy blithely lower interest rates over and over?
The US needs a new president. At this point, I don’t care if it’s Obama or Hillary, or Barney the Purple Dinosaur, but we need someone in the White House who understands the notion of financial disaster and will actually make some hard choices (I’m talking to you, John McCain, you jowly little weasel who will say anything to get elected.)
June 27th, 2008 at 9:23 pm
What John McCain said to get elected that Obama hasn’t? McCain is an American hero and deserves respect. Obama is just a speech and something new for the liberal Democrat party to pretend is going to save there party. Let me guess if Obama is president then the monetary policy solution will be solved, right.
Besides, its cheap Chinese imports that are really costing America the economy. We need to build a wall around the country and tell everyone else to take a hike back to their huts. Watch a boat come into a port in teh US with the water coming over the rails its so full. Then watch it leave with the prop sticking up above the water. You’ll see what I mean then.
June 28th, 2008 at 1:10 am
Why is it that anytime anything political is posted here, BJ comes out swinging for the Right?
June 28th, 2008 at 12:40 pm
BJ obviously is entitled to his point of view, but I personally think the problems facing this country are so severe that no purely ideologically driven approach will suffice. There’s much to be said for the policies of McCain: BEFORE he dropped his opposition to supply-side economics. Now that he’s adopted that tired (and disastrous) baggage, his economic platform must be considered highly suspect.
Though in his–and Obama’s–defense: at least both of them opposed the gas tax holiday. Hilary, on the other hand, succumbed to the same type of easy demagoguery that McCain eventually gave way to (albeit on a different issue), and ran around telling the American people that there is, in fact, such a thing as a free lunch. (Though I like to think she wouldn’t have been so craven if her candidacy hadn’t reached such desperate straits.)
@ Melinda: I think you raise a great point re Greenspan. I’ll have some thoughts on him in my next post.
June 28th, 2008 at 1:19 pm
Actually, McCain proposed the gas tax holiday and insisted Obama and Clinton support it or come out with a better idea for relief. I think McCain’s ideas are great and he’ll make a great president when he’s elected as soon as the world sees what Obama is really about, like more taxes on everyone when we all allready have enough pain.
@Al, what’s the problem with swinging for the Right? Is this you way of supporting the Hush Rush movement? Equal air for all, right?
Thanks David for giving me the chance to have a point of view here. I love the book and I love this country and we need a experienced leader to see us through.
June 28th, 2008 at 1:50 pm
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June 29th, 2008 at 12:47 am
BJ, equal air for all? Perhaps on a government sponsored forum where such things matter. This is David’s blog.
I have no idea what our host’s political inclinations are other than what I can guess from the writing here. I’m not too worried about it. I come here because I enjoyed his book and hope for more discussion of them or other writings from him. I don’t expect that every time that something political is posted that this blog hosts a simplist “left versus right” debate. I’m not a Democrat nor a Republican, after all.
I do find it odd that you remind us how much you love your country in these exchanges though. Is the default assumption that you don’t if it isn’t said. I think most people love their nation, or at least its people if not its government or policies.
July 1st, 2008 at 12:04 am
Al, why do you try to argue with me like I attack you? If anyone’s swinging its you. So then you don’t support Pelosis’ equal air time criebaby bill? That’s good.
I don’t know what the bloger’s political inclinations are either, but I know I love my country and I served to protect it and the leaders of it. When it’s under attack from our own people or from outside it should be defended. I think alot of people say they love America but when it isn’t conveinent they start bashing America.
I’m sorry you can’t find a party to call home, but I’m a proud member of the Repubilcan party and I protect it when its attacked. You can try to get fancy with arguments about stuff that doesn’t matter but we are a great country and the world knows we are right.
Back to the topic of the Fed, I think McCain will get it right when he takes it over and will save us from slipping in to a recession. The economy has been hurt ever since the attacks in 2001 and Bush has worked hard to keep us safe while fighting 2 wars sucessfully and keeping the economy going good. I make more money now than I did in 1999 when the other guys were in charge.
I have to go to now so I can get to work helping to keep the economy blazing making a real honest living with goods made in the USA instead of cheap lead paint junk from our friends in China.