Tuesday, December 11, 2007

Bernanke: 'Pushing on a String'

As cross-posted on Stock Picks Bob's Advice and Trading Goddess:

I join with other investors in disappointment of seeing a 1/4% drop in the Fed Discount Rate.

The market didn't like it and turned from about a 50 point gain in the Dow to a 220 point loss. And the market has another hour to trade.

But what can Bernanke do? Rate cuts drive the dollar down in value. And raise the risk of inflation as imported products climb in price.

The interest rate supports the value of the dollar which has plunged approximately 44% against the Euro in the past 7 years under President Bush's leadership. That means that in a global economy, the value of everything we own has been devalued by about 1/2. When we travel abroad, we can see the effect of the weak dollar when it takes $5 to buy a Coke in Italy.

Dollar/Euro price chart from Yahoo:

With the subprime mortgage mess unraveling and the derivatives and hedge funds shenanigans continuing to come to light, our economy needs a stimulus like a rate cut. But if we fail to support the dollar, the Chinese are likely to resist continuing to fund our debt instead turning to Euro-backed securities and the OPEC folks are likely to once again consider pricing oil in Euros and not dollars.

I am greatly concerned for our economic vitality and prosperity.

We have unfortunately continued to be led by politicians who subscribe to the Grover Norquist pledge of 'no new taxes'. Why taxes are bad --aren't they?

But can we continue to cut taxes and pour money and resources into military activity without paying the piper somehow? Should we really believe that tax cuts are essential to grow the economy when this endless printing of dollars in terms of an expanding budget deficit is a threat to our well-being.

Should we be concerned about the ever-growing disparity between the wealthy and the poor?
Even Henry Ford knew he needed to pay workers enough so they could buy a Model T.

We cannot depend solely on high-end retailers catering to the wealthy to sustain this economy.

Balancing the budget needs to be a national priority. Tax policy must not work to encourage the continued outsourcing of quality jobs overseas. Efforts to repeal the Estate Tax will only insure more of a continued Plutocracy in America with the wealthy getting richer and the poor poorer and out economy will suffer. Cuts to education will not help the poor rise up out of their economic morass.

This country has been headed in the wrong direction under this President and we are all paying the piper.