Busted: Bankers and The Global Economy

October 14, 2008

Is Inflation King Yet?

superpower confidence

superpower confidence

The media and the perception of confidence took a temporary nosedive after a banner day at the global superpower. There is so much going on, who can really know what is really driving the situation except perhaps confusion? The bottom line is that investors will continue to fret about the stock market and take profits while they can, even in a volatile market. That is human.

As part of the new building blocks in the national economy, the U.S. Treasury finally confirmed plans to use the initial $250 billion to invest in large banks and former investment banks with conditions. All but one bank took the federal government up on the offer. President Bush has requested another $100 billion for bailout aid as well as a move for the Federal Reserve to start buying up short-term debt from companies. Meanwhile, Henry Paulson has hired Mellon Bank of New York to assist the U.S. Treasury in buying failed mortgage securities or troubled assets.

As usual, the Federal Reserve’s main preoccupation is to manipulate public perception of interest rates and the classical perception of low inflation. Ben Bernanke is keenly interested in keeping national confidience in the hope of somehow strengthening the dollar and curbing the tide of what is proving to be nasty inflation in a time of wage stagnation. The Fed simultaneously manages interest rates while working to keep the economy from dropping into a recession. Uncle Ben has his work cut out for him, especially since we are probably already in a recession by his own definition. If he knows that, he isn’t saying. No surprise there. Besides, inflation is now a back door issue.

Uncle Ben has been busy on the dollar and liquidity front as well. Unknown trillions of dollars have been forced into the U.S. banking system in an effort to get banks moving again. Uncle Ben has been working with the help of central bankers around the globe to make this happen. So far, the efforts haven’t worked. One of the conditions on U.S. bailout funds for banks is that the money is used for loans instead of bank protection, which may begin to change the banking equation soon. Whether that condition works remains to be seen.

All this money flowing would appear to generate some positive and decisive activity. A nationally-recognized recession seems evident as Corporate America and Corporate Multinationals are starting to reap financial declines, further jeopardizing any chance at economic expansion and further withering job prospects. Huge injections of cash are generating one large problem that will come home with a vengeance given some time: a rather stiff inflation rate. The U.S. will soon wish for today’s inflation. But, we live in the real world, so we consider the price of food and fuel without faking the facts. Other issues like a high jobless rate coupled with that inflation will be still worse. Could stagflation be around the corner or are we already there? That depends on who you ask. ~ E. Manning

Advertisements

Blog at WordPress.com.