Busted: Bankers and The Global Economy

July 22, 2008

Batten the Hatches, Reverse Course on Inflation

The Federal Reserve is unhappy. Inflation is not on course. Prices are not stable. Charles Plosser, president of the Philadelphia Fed, expects the Federal Reserve to take action before any signs of recovery are seen. While this may seem to be news, the Fed has already expected this turn of events in their policy.

The Fed’s is concerned that high energy and food prices will spread inflation throughout the economy. The Fed is measuring inflationary pressure on the entire economy, which is already impacted, and the entire economy across all sectors, which is not yet reality. They are concerned that consumers, business and investors will pull back into their tortoise shell, fulling expecting prices to spiral upward in an inflationary burst of energy. Confidence is their business and the Fed hasn’t been able to sell much confidence lately. The confidence men of the Federal Reserve can’t overcome the bad news in the banking and mortgage industry as banks continue to hemorrage cash, credit and jobs because of forced writedowns.

Panicked customers of IndyMac that waited in banking lines in the California summer heat won’t have full control of their money if they want to relocate funds to another bank or perform major business deals. Personal business is being delayed as bank drafts are being held up or refused altogether. The managers of other banks don’t want to get mixed up in the hassle while taking heat from disgruntled customers. Banks managers are keenly interested in protecting bank assets, making certain that bank credit is available for transactions without putting their bank resources on the line. Confidence within the banking system isn’t what the FDIC wishes it was as many bankers walk forward cautiously. The irony is that many depositors continue to remove their money from IndyMac after the FDIC took over, when that money was the spoken for by the government and is ideally most secure.

Taking care of important business after the fact is usually dirty business. Yet, that is what most of us do, including the regulators, governors, managers, politicians and administrators involved with the entire banking and mortgage debacle. We say that money is so important to us and yet few take the time to be certain that matters are reasonably handled, while we fail to hold those in charge accountable. Why? Those in charge have proved that they are not accountable and that they cannot be accountable. The system is all about easy money. Other people’s money is simply too easy to abuse. Chances are, everyone is playing with your money as the taxpayer. The party with your money is over. Elvis has left the building with the door wide open and the money isn’t even real, created out of thin air.

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