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I normally provide a link here to the source post but this 'source' says "All rights reserved. This material may not be published, broadcast, rewritten or redistributed." so I'm not crediting them with jack.. ;)
I felt like this was the most important story of the day so wanted to post it here along with some of my own comments..
This article seems, to me, to be more open and honest about our current economic situation than most..
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WASHINGTON, D.C. -- Federal Reserve Chairman Ben Bernanke is balancing a short-term fix for the economy with a long-term gamble: His plan to buy Treasury bonds to fight high unemployment and super-low inflation now could ignite inflation later.
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I found it interesting to see the word 'gamble' in this AP story.. I have said since the fall of 2008 that what the FED and government are doing is an 'all in' gamble and that if they are wrong our economy is certainly doomed to crash and crash hard.. Of course they know this also..
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But Bernanke is signaling that doing nothing would pose the biggest risk of all.
The Fed chief on Friday made his strongest case yet for injecting billions more dollars into the economy. Purchasing the bonds could further drive down rates on mortgages, corporate debt and other loans.
Lower rates could lead people and companies to borrow and spend. And higher spending might help ease unemployment and invigorate the economy.
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Most rates are already as low as they have ever been.. Low borrowing rates has not worked to help the economy and, in my opinion, they will never work until consumer debt is under control.
Please see
Should We Be Restarting the Consumer Debt Machine?
By Heidi N. Moore
Posted Friday, April 30, 2010 - 10:59am
for an interesting discussion about consumer debt on thebigmoney.com
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The Treasury purchases would have another aim, too: to dispel any notion that consumer prices will stay flat and might even fall. In his speech Friday in Boston, Bernanke indicated that Fed policymakers favor raising inflation, which has all but vanished.
And more inflation could help the economy. Here's how:
Companies would feel more inclined to increase prices. And shoppers who thought prices were headed up would be more likely to buy now rather than wait. Their higher spending could embolden employers to step up hiring. It would also help lift inflation.
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No! In my opinion this thinking is completely wrong-headed! This idea is based on the economics of the late 1970's / early 1980's. A period in American history in which the higher prices went the more consumers borrowed and spent. A time when inflation was raging through the economy. The government and the federal reserve would love to duplicate this runaway borrowing and spending of the past. However, see above link, the PROBLEM is consumer debt! Intentionally CAUSING inflation and higher prices will kill the economy not help it! Especially when it comes to anyone and every who is trying to live on a fixed income! In my opinion this crazy attempt to CREATE runaway inflation is insanity! American consumers are already stuggling with too much debt and the government and federal reserve are attempting to create much more debt! As I said, insanity in my opinion..
In the end, as many already know, the REAL GOAL is to reduce the value of our currency, consumers, savers, and those trying to get by on a fixed income be damned, in order for the U.S. government to repaid debt with devalued currency thereby, hopefully, staving off insolvency.
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But overhanging the Fed's plan is the risk that it would trigger runaway inflation months or years from now.
Once investors began to fear approaching inflation, they would demand higher rates on bonds. Banks, too, would raise loan rates to compensate for the higher inflation they expect. Workers would demand higher pay. Any strength the economy had managed to gather could dissolve.
Bernanke made clear he's mindful of the gamble. But he also indicated he feels that short-term needs take priority.
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There is THAT word yet again.. 'GAMBLE' Is that what we want to DO with our children's future? Gamble..
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"There would appear -- all else being equal -- to be a case for further action," Bernanke said, building on the case he first laid out in an August speech in Jackson Hole, Wyo.
The Fed is returning to unorthodox steps like buying government bonds to aid the economy because it's already sliced its key interest rate to a record low near zero.
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Here is the unfortunate truth in a nut shell...
Some economists say the Treasury purchases might not work because interest rates already are so low that the benefit of driving them lower would be scant. And lower rates won't help if [businesses and individuals can't afford to borrow, don't want to borrow or cannot qualify for loans.]
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To buy Treasury debt, the Fed in effect prints money. As the Fed snaps up Treasury bonds, the rates on those bonds will fall. Rates on mortgages, corporate debt and other loans pegged to Treasury securities will drop, too.
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The fed continues to print money, otherwise known as monetizing the debt of the United states government, which Ben Bernanke and the FED previously said they would NOT do. This is an act of TRUE DESPERATION! Pay attention please..
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It comes down to supply and demand: Higher demand for bonds lowers their rates, or yields. And it drives up their prices.
Fed policymakers are expected to announce their Treasury buying program at their next meeting Nov. 2-3. Bernanke indicated that a big issue remains unresolved: How big should the Treasury purchases be and how fast should they be carried out?
During the recession, the Fed launched a $1.7 trillion program of buying mortgage securities and government debt. That effort was credited with forcing down mortgages rates, which helped prop up the housing market. The Fed's new program is likely to be much smaller. One Fed official has suggested a $500 billion program. Another has hinted it be $100 billion or less.
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Another word/phrase *I* don't care for at all personally above.. "which helped prop up the housing market". That's all the U.S. government and FED have done FOR TWO YEARS NOW! Is to prop up a still FAILING economy!
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Still, even purchases of that size risk feeding inflation and, most dangerously, setting off a wave of speculative buying that could inflate the prices of stocks, bonds or other assets. Low mortgage rates after the 2001 recession were blamed for the housing bubble that burst and led to a severe recession starting in late 2007.
Yet another worry: The extra dollars flowing from the Fed's Treasury purchases might send the dollar's falling value even lower and incite a panic. If China and other investors dumped dollar-denominated assets, for instance, interest rates would soar.
And if tougher economic conditions forced the Treasury to sell more bonds to raise money, the national debt, already at $14 trillion, would swell.
The economy is growing at a pace "less vigorous than we would like," Bernanke acknowledged. And inflation is running too low for a healthy economy, he said.
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Here we clearly see that even if the federal reserve thieves succeed in creating inflation it could very easily DOOM the economy just the same..
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Unemployment, now at 9.6 percent, has been stuck near double digits for more than a year. Bernanke indicated concern that economic growth will remain lackluster and that unemployment will decline only slowly next year. High unemployment would keep consumers cautious in their spending, Bernanke said.
Retail sales did rise in September for a third straight month, the government said Friday. But spending remains too weak to strengthen the economy and lower unemployment. That helps explain why the Fed wants to guard against falling prices.
Because the economy is still so sluggish, "the risk of deflation is higher than desirable," Bernanke said. Deflation is a widespread drop in prices, wages and the values of stocks and homes.
Deflation is dangerous for individuals, companies and the economy overall. Workers suffer pay cuts. Corporate profits decline. Stock values fall. People, businesses and the government find it costlier to pare debt. Foreclosures and bankruptcies rise.
And people spend less, convinced that prices will fall even further if they just wait. That trend is already evident in the housing market. Many would-be buyers are idling on the sidelines, expecting home prices to keep dropping.
As Bernanke spoke, the government issued a report that pointed to why a new Treasury-buying program may be necessary to ward off deflation. Consumer prices excluding the volatile categories of food and energy were flat for a second straight month in August.
This gauge, called "core" inflation, has ticked up just 0.8 percent over the past 12 months. That's the smallest annual gain in nearly a half-century. The Fed's inflation comfort zone is for such prices to hover between 1.5 percent and 2 percent.
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And the text above points out what the entire 'game' is all about.. Avoiding the boogy man of deflation..
Here is an excerpt that contains REAL TRUTH about deflation.. Also provided below it is a link to the entire article which, in my opinion, is a MUST read..
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Government's fiscal policies of tax and spend also distort production into unnatural, uneconomic patterns. The inherent flaw in using government spending to guide and shape production is the same one that plagues socialist economies -- namely, that the government cannot know what the people want as clearly as the people themselves know. Inevitably, government overstimulates production of things that people wouldn't freely choose while depressing production of what the people do want; hence, government makes society poorer than it otherwise would be.
In short, we wouldn't be faced with a potentially cataclysmic deflation today had it not been for decades of foolish government policies that created bubbles.
Economically speaking, inflation is like heroin addiction. We enjoy the "highs" when the bubble inflates and the good times roll, but underneath the surface, our health is eroding. The addict needs to suffer the wrenching pains of withdrawal in order to recover his health. Similarly, in order to get reestablished on a sound economic footing, our society needs to endure the short-term pain that accompanies absurdly overpriced assets crashing back to earth, while the economy is purged of decades' worth of malinvestments, uneconomic patterns of production, and unfathomably massive amounts of unpayable debts.
Another apt analogy is the catastrophic fire that burned half of Yellowstone National Park in 1988. Forests periodically need fires to clear out rotten, moribund growth to make way for vibrant, vigorous growth. Decades of intervention, during which government officials intervened repeatedly to suppress relatively small fires, created the conditions that led to the massive 1988 conflagration. Likewise, government intervention repeatedly has prevented necessary deflationary adjustments from taking their course over recent decades. This has set the stage for a much more severe and widespread deflation.
Right now, the U.S. economy is a dead man walking. If we don't bite the proverbial bullet and go through a painful, cleansing, economically healing period of deflation, the ultimate price we pay will be even worse. Like the heroin addict who can't kick his habit and eventually ODs, someday, the Fed will go too far in its inflationary policies, igniting a hyperinflation -- thereby annihilating the dollar, wiping out the middle class, and totally collapsing the economy. A deflationary correction is the painful but necessary process that would restore our economy to a healthy, sound condition.
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And here is the link to the full article on American Thinker
We MUST STOP the monetary madness emanating from Washington soon before they destroy all of us along with our beloved country..
Greg
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