Without dwelling too much on the actions that have brought on our current economic problems, suffice to say that there is sufficient blame to go around. All of us on this board have repeatedly taken our esteemed Fed Chairman to task for his poor judgment. My current focus is on how futile his actions are to rectify what he has wrought. To me, it seems it really didn't matter what he did this past Tuesday: cuts of seventy-five basis points or even a full point would have had only a minimal impact on the markets to the upside. The net result will be a down market, as we have seen. So, I disagree with Reich or any other pundit who thinks the size of the cut would influence the course we are currently on. I believe that a recession, perhaps a severe one is practically inevitable.
A hundred and fifty points so far and the markets have gone further in to the tank with each one. Why? Because this economy is dependent on the consumer. Seventy-five percent dependent on consumers to spend on things. My contention is that just about everybody with a stable income has already bought all the stuff they want over the past several years. The consumer is tapped out!
There is no doubt that credit card debt is at a record level. If a job has been lost due to a layoff and not quickly replaced, bankruptcies will ensue. Also projected to be a record.
The Bankruptcy Bill recently passed through Congress now makes it tougher to declare complete bankruptcy. That bill goes into effect in 180 days. Some people, faced with onerous liability could apply for new cards, load up further on 'things', then stiff their creditors with a Chapter 7. Consumer spending could blip up and give a false reading by actually increasing, fooling the power structure into believing all is now well. "See", they would say, "the rate cuts worked!"
The California rolling blackout situation, regardless of who is to blame, is real and only going to get worse and spread. (Duracell's stock ought to be buy). Since California is the world's sixth largest economy, if it were independent from the rest of the US, the financial impact on GDP will be at least 1%, and perhaps more if the blackouts spread to other sections of the country.
What Greenspan has set in motion starting in June,1999 will not be rectified by Greenspan's rate cuts in the first half of 2001. He is powerless to halt the slide. The market is on a course that will not be halted soon or easily. Instead of inflation, perhaps the Fed Chairman should have been more concerned about deflation. |
