Busted: Bankers and The Global Economy

July 27, 2008

Expanding Inflation Risks U.S. Economy

The debate has been on since the United States has seen an alarming increase in the costs of essentials across the board. For years, the Federal Reserve has ignored the impact of energy and food prices in its computations for inflation. As a result of recent events, the Fed has been forced to retool its thinking, even though the Fed body of thought insists on using the same computations.

The Fed remains skeptical that high commodity prices will ripple through the economy, leading to broad price hikes and big wage increases. Why the Fed assumes that wage increases are even in the cards is beyond most economist thinking. The fact is that the United States is in the midst or very close to what the Federal Reserve and economists hate the most: the evil of stagflation. There won’t be appreciable increases in income, only hikes in cost, loss of jobs and the devaluation of the monetary system.

The myth is that the Federal Reserve can control the inflation rate by moving up on the interest that it charges banking institutions is insanity. The economy, much less the banking industry, has already proved that interest rates have only been used to pad the bottom line of bankers, while helping anyone else very little, if any at all. Bankers simply pass on the cost of interest, further depressing the loan industry in an economy where many are strapped to meet their current budgetary constraints in a time of burgeoning costs.

The truth is that the Fed refuses to deal the reality of declining purchasing power that is caused or made worse by overly lax monetary policy and runaway government spending. The existing national deficit is running close to $10 trillion and with government promises of protection in place, the debt is likely to rise much higher without considering the realities of needs like budget increases and increasing spending through Congress. The Fed is into protecting the insanity of its’ only patient, Uncle Sam.

As the economy becomes more global, the increased consumption and prices globally fail to defuse the concerns or pressure of a local economy or consider the plight of the American economy or Federal Reserve policies. Only my often grumpy friend that runs the Dallas Fed, Richard Fisher, has seen the light in any way. At least he sees the need to take action. He is continually outvoted by other members.

Still, the truth that interest rates will truly resolve inflation in an appreciable way is largely a myth of wishful economics. The complexity of economic circumstances, even the global economy work against such an easy solution.

Meanwhile, the stimulative effect of previous interest rate cuts by the Fed has only served bolster the stability of the banking, mortgage and finance industries. It has done little to help the economy for a multitude of reasons, banking being one of them.

The idea that waving a magic wand of interest rates somehow contains inflation is outdated in-the-box thinking. That in-the-box thinking fails to address what is going on in the world combined with the declining power of the United States economy that so many pundits are parading like gold jewelry.

~ E. Manning

1 Comment

  1. Rules are not necessarily sacred, principles are.
    Franklin Delano Roosevelt
    1882 – 1945
    32nd U.S. President

    Comment by 9/11 Truth — July 27, 2008 @ 4:11 am

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