The Fed's next actions

The Fed has lowered rates again and again to induce consumer spending. Obama is saying that consumers need more "cash" in their pockets, and the "affect" of the stimulus checks is not very stimulating at all.

Granted, retail sales were up 1% this month, which is higher than economists expected. But, all that resulted in was an initial bullish push off stocks, with the bearish correction beginning at roughly noontime...during trader's lunchhour.

But is this a real solution? Put cash in consumer's pockets, and encourage them to make that downpayment with their stim-check...but don't worry about the payments! How is this not adding straws to the camel's back? Interestingly enough, most people are saving their stim-checks for a rainy day.

The summertime will show us an increasingly wan US economy...like a frail Victorian lady on a hot, muggy Southern day; the economy won't be able to stand up to much further beatings...and the beatings look like their coming.

We have not even fully dealt with the subprime problem. What about the Option Arm problem on the rise? And, then, what about the effect of potential class-action lawsuits against the banks that funded these loans? House prices haven't even reached their floor of support yet, which (I was told recently) was when the mortgage on a house (assuming 20% down) pays for the rents...in many areas that is a further decling of 10 - 25%.

Given that, will the Fed lower rates again???

Let's think of the rammifications. The Bank of England and the European Central Bank already said they made need to raise rates when they voted recently to keep the rates steady. Read it here. Indonesia may raise rates, read it here. China, India, Singapore are all experiencing inflation at rapid rates. Inflation is global, read it here, here, and here.

So, why does the Fed continue their inflationary policy?

Because consumer spending accounts for more tha 70% of the American Gross Domestic Product. So, why's the Fed lowering rates? To encourage spending!....err....I mean....borrowing! This is because we Americans don't pay cash for things, we charge it!

That mentality needs to change...

And it will; but it's going to be a painful, long, difficult road to hoe. It will mean high Volcker-like interest rates, hard-to-find credit, higher taxes, nasty state and federal budget cuts, Medicare & Social Security overhauls, and a cease to our nation-building policies. Basically, anything to save money.

It will be a good education for the American people. It will humble us, God knows we need it.