Did Fed Chief Ben Bernanke and his peers do right by cutting rates?

No. The Fed did not do the right thing.

The “liquidity” the Fed has been pumping into the market will eventually find it’s way into consumer prices unless Fed policy changes, and it’s doubtful it will. The political winds simply won’t allow it. True inflation is much higher. Asset prices are deflating after a decade, or more, of poor policy decision by the Fed that encouraged asset inflation including real estate.

The Fed is trying to change a normal free market collapse of the bubble the Fed itself created. It’s trying to cure a disease with the same medication that caused it. It won’t work. The Fed needs to back off before it makes the inevitable even worse.

The dollar is inhaling it’s last breath. Whether it exhales quickly or slowly won’t matter. The end result will be massive inflation, perhaps hyperinflation, caused by the very agency that is supposedly commissioned to protect against it.

See other comments by following this link:
http://onassignment.blogs.foxbusiness.com/2008/10/29/weigh-in-did-the-fomc-make-the-right-decision/

Straight Talk

I had this video posted in an earlier blog but the video source disappeared on me. Found a better source any way.

This is by far the best televised discussion of the real problems we face. Debt, consumption, real estate, depression, college tuitions, and more all discussed...

http://www.europac.net/Schiff-CNN-10-6-08_lg.asp

Greenspan's Extra Terrestrial Interview

It's always fun to read economic analysis wrapped in an amusing story. ET explains a huge problem to former Fed Chairman Alan Greenspan:

"Debt levels are central to the safety and soundness of a financial system. Left unchecked, they grow to a point when the debt service burden starts squeezing disposable income, which in turn curtails spending and what you call economic growth. If the ‘squeeze’ becomes a ‘shock’, as in rate resets of your Adjustable Rate Mortgages, the consumer defaults. If enough defaults occur, lenders get scared, pull in their horns and curtail credit. This sets off a chain reaction … lower spending, leading to lower business profit, leading to lay-offs. Now you have consumers experiencing painful shocks to both incomes and obligations … leading to more debt defaults … which repeats the cycle in a downward spiral."
Read more...

More on Inflation

Here are a couple of video clips that I thought were very poignant with regards to inflation and monetary policy.

The first is a clip of Ron Paul questioning Fed Chairman Bernanke who agreed with Ron on the subject of inflation but then in typical government fashion pushed it aside and diverted attention to price issues which have nothing to do with inflation.

Remember, inflation is simply an increase in the money supply NOT an increase in prices per se although inflation will cause prices to rise. Absent inflation prices are a function of demand and supply. This is high school economics but listen to how hard it is to understand Bernanke who is so revered by the main stream media and most politicians as the maestro that will lead the class to the promised land. Then contrast to Ron Paul's common sense comments.



I think that someday we'll look back on the Federal Reserve Act of 1913 that created the Federal Reserve with disdain. In that act congress delegated it's constitutional authority to "coin money and regulate the value thereof" (Article 1, Section 8 of the US Constitution).

This second clip is Ron Paul commenting on the discussion in the first clip.


Under our current circumstances the Fed is already pumping "liquidity", short for printing money or creating inflation, into the market place. In the short run it will benefit big financial institutions. Current Fed policies will erode the value of the US dollar and US denominated assets.

You Really Should Read This

Everyone that has read anything on this blog should really read this book - "Crash Proof: How to Profit From the Coming Eceonomic Collapse". This book gave me a framework that I was able to use to put all the Wall Street hype in perspective. Everything that is happening today was addressed in this book when it was published in 2006. I wish I had this to read years ago! If you're not interested in reading it at least listen to the author talk about it.

The author, Peter Schiff, hosts a weekly radio broadcast and talked about the bail out bill and many of the things in his book in this week's show. To listen to the show click here. I usually download to my phone and listen to it while driving.

If you you're interested, and I hope you are as much as I am, check out his firm's website at www.europac.net and click "Resources" for a number of great video interviews, commentaries and other useful sources.

Unfortunately I know that not everyone can take the invesment advice given but the economic perspective is crucial to understand regardless.