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Friday, August 3, 2007

FEDS OUT OF TOUCH

FEDS OUT OF TOUCH

As most of my readers know, I am not very fond of the Feds. Under Greenspan it made many errors. The market has always been willing to have given Greenspan credit for an upward economy even though no one ever understood what he was saying. He was so concerned about inflation that he forgot everything else. Eventually, he partially was responsible for the great dot com bubble burst.

Bernanke appears not to be much better. Last year he continued to increase interest rates so rapidly before waiting to see how the market would respond. As a result he brought on us the great collapse of the housing market. I do not understand why these people do not realize that what they do takes time to be reflected in the market. By the time the market responds it will be too late to reverse the process quickly. Here we are about one year after the tightening ended that we are beginning to see the market respond. The job report published today is a bad sign. It was not what the market expected. I know that many would want to blame President Bush for every disaster in the world from globing warming which does not exist to the earthquakes and volcano eruptions which occur around the world, but Bush has more economic sense than Bernanke. There is no doubt that the Bush tax cuts were the impetus for the growing economy and the stock market. I hope my readers do not think to give the credit to Bernanke and his friends. They may want to take the credit as Greenspan did during his tenure.

Many people got caught up in refinancing their homes in the so-called sum-prime market and they have lost their homes, and more will lose before this fiasco has ended. I truly believe this happens every 15-20 years because it is a way the banks seize one’s property legally. It occurred during the 1930's with many people losing their farms, and it has continued since then. Let us not forget that the Feds are bankers. They are the wolves protecting the hen house. Think about it. When the banks foreclose they lose nothing. They gain tremendously. Their loans are protected by the homes they finance. What this country needs is another Teddy Roosevelt to control the banking industry. But a guy like TR comes once in a century. We are about due for another, but as I look about the political landscape I do not yet see him or her, if you prefer.

What ill will a bit of inflation cause? For the Feds it will be a disaster not because of inflation itself but of their practice of printing worthless money which is the real culprit to the overall economy. It is the value of the dollar, stupid, not a bit of inflation. Additionally the published inflation numbers are minus food and energy. Now is that not ridiculous? The items which most influence what we spend are subtracted out.

Decreasing interest rates is the only thing which can correct the problem in the housing market. The world may not like it but many people will not lose their homes and people can have a chance to rearrange their debt to get out of the mess into which they entered when banks were unscrupulously selling the sub-prime mortgages. After all the feds should be working for the people instead of the big banks. The Feds and the government looked the other way when banks were selling these entities. They should now attempt to correct the problem. It should be illegal for banks to sell money below what it cost them to get it. We go after other nations who try to sell their goods in the US less than what it cost them to produce them. Is this not the same thing? Let us not forget that the Feds ARE bankers, and they do not work for the people.

Another thing economists worry about is the national debt. Since when has the national debt been related to anything going on in the economy? The national debt has been increasing steadily ever since I can remember. During this time the economy has flourished and sometimes it has not. Markets have gone up and they have gone down. People worry about the debt and others do not. During the past few years the debt has increased to the greatest amount ever, but the market has reached levels never known before. During the past few years, however, the dollar has decreased in value, but this is not due to the national debt. As I have said earlier, it is due to the Feds habit of printing money which is not backed up by anything but the GNP.

Ron Paul suggests that we slowly return to a gold standard. Now there is a guy who might be a modern TR, but the media are not going to promote him. He is too sensible.

Later, I will meet up with a friend at La Terrazza, a local bar, for a cerveza, that is beer to you, and I will then put Bernanke in perspective! How easy it is here in Panama!

nicola michael c. Tauraso, M.D.

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