Yep. And I think it will get fuglier before it gets better. We're not out of the fug yet.
So Bush reportedly called up Fed Chairman Ben Bernanke and used salty language to get him to cut interest rates further and deeper than Ben wanted. That's always a good sign, when the President is pressuring the Fed to act rashly during an election year. Bush wants to preserve some semblance of an economic legacy. Yet, this crass, belated attempt to prop up equities and avoid recession during Bush's final year will not allow the "free" markets to quickly purge themselves of malinvestment. If anything, these moves will prolong the recession while fanning the flames of future inflation.
The Cunning Realist reminds everyone why we want to avoid a return to the 1970's. Besides disco.
There was a time not too long ago when folks thought Bernanke might be able to resist the pressure to cut rates, and be a toolish backstop for the stock market:
Ben S. Bernanke, Mr. Greenspan’s successor at the Fed (and his loyal supporter during the antideflation hysteria), is said to be resisting the demand for broadly lower interest rates. Maybe he is seeing the light that capitalism without financial failure is not capitalism at all, but a kind of socialism for the rich."Amen.
During all this ridiculous Reagan worship by the GOP presidential candidates, none of them (except Ron Paul) seem to recall Ronnie's belief that inflation is "the cruelest" tax, especially on the poor.
As for real inflation fighters, did ya hear? Former Federal Reserve Chairman Paul Volcker endorsed Senator Obama for President. Gravitas, baby!
Recalling a time of far more severe economic and inflationary challenges, where Volcker had to raise rates to kill inflation, here's a segment from President Reagan's news conference on 3/31/82. I don't subscribe to all the points that Reagan makes in this excerpt, but I thought it provided an interesting contrast to the immature monetary madness going on right now:
Q: During the Presidential campaign, your Presidential campaign, you asked an extremely effective question of the American people. And it went like this: "Are you better off today than you were 4 years ago?" So, it seems only fair to ask this question at this time. With high unemployment, high interest rates, an increasing number of business failures, and a generally bleak economy, are Americans really better off today than they were when you became President?
The President: Of course, you realize it would be fairer if they asked me that at the end of 4 years instead of 1. But let me just point out
Q. [Inaudible]—to turn things around quickly?
The President: I don't think there's a single thing there—I mean, a single thing in which you could say one way or the other. For example, yes, unemployment has increased, because of the recession. But I would remind you, that we had almost as much—we had in the neighborhood of 8 million unemployed back then, before we came here. We had interest rates of 21 1/2 percent. Well, they're 16. That's still too high, and it is those high interest rates that are delaying our coming out of this recession. We had 12.4 percent inflation. Inflation is now down and has for the last 5 months been running at only 4 1/2 percent.
Now, let me just give you an example of what that rate of inflation means and what the entire 1981 decline that we brought about—because inflation started down before there was any recession, and I think we had something to do with that.
Take the average family of four that is living on the threshold of poverty, which we say, now, is $8,500-a-year income. That family now has $375 more in purchasing power with their $8,500 than they did at the rate of inflation in 1980 and leading up to the Inaugural in '81. So, when you say better or worse off, I think there are elements of better off. And probably the worst one is the penalty imposed with these high interest rates which, as I say, we have brought down some, but which have contributed to not only unemployment but the other tragedy of the small and the independent business people and the farmers, many of them, who have not been able to make it through this period.
But I think that we are bottoming out, and I believe that we're safe in saying that we think there's going to be an upturn in the second half of the year.
Q. Mr. President, you've talked often about the long-term goals of your economic recovery plan, but a lot of people are in trouble right now. They don't have jobs, and—millions of them—how long are you willing to let unemployment continue at current high levels before you take some sort of short-term emergency action to bring it down?
The President: Short-term, emergency actions that have been taken in the past—and there've been seven previous recessions since World War II—and that short-term has been a flooding of the money market, an artificial stimulant to bring down unemployment, and at the same time it usually skyrockets inflation. Now inflation is the cruelest thing and the cruelest tax on the poor, if we're taking sides as to who's for the rich or who's for the poor. And I just gave a figure on that a moment ago.
We have, in some of the hardest hit States, extended the unemployment insurance. There's nothing that strikes to my heart more than the unemployed, although at this time I think the farmers, the small business people, people in real estate and the construction industry, who are losing their businesses—family-owned businesses—and they can't get unemployment insurance, they're just out and broke—is also heartbreaking problem. But the answer to this has to be in a recovery of the economy.
The interest rates, remaining as high as they are, which are holding this up—there is nothing that government can do about this except hope that we can prove to them that we are serious about continuing this program. Those interest rates aren't staying up because of anything that the Fed is doing or anything that government is doing. They're staying up, because after being burned a half a dozen times in these previous efforts by government, we find that the money markets just don't believe that we'll stay the course, bring down government spending, and hold inflation down. They're looking for that temporary stimulant that will then send up the interest rates.
"I used to think if there was reincarnation, I wanted to come back as the President or the Pope or a .400 baseball hitter, but now I want to come back as the bond market. You can intimidate everybody." --James Carville