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Politics : Formerly About Advanced Micro Devices -- Ignore unavailable to you. Want to Upgrade?

To: RetiredNow who wrote (367654)	1/21/2008 3:35:51 PM
From: tejek	Read Replies (1) \| Respond to of 1571775

The last time we had these conditions was in the 70's and that lead to a pretty unpleasant recession. Volcker stamped out inflation by 1982, but it was very unpleasant. We don't have a Volcker. Instead we have a Bernancke that believes in feel-good economics. What we had in the 1970s was stagflation.....little growth with rising prices. No matter how you look at it that's an unusual combo. In the 1970s, the supply of oil was artificially constrained by OPEC and since oil plays such an important part in the American economy and is not restricted only to heating and proving fuel for transportation, the artificial rising of crude prices had a negative impact on the prices of many goods and services in the country just as the economy went into recession; hence there was no growth with rising prices......the classic definition of stagflation. I don't think that's what's happening now. We have encountered serious problems with housing. Housing construction was maintained at levels long past what was needed. That happened because housing demand was artificially inflated by a serious violation of the rules of real estate. People were put in homes who shouldn't have been using artificial means.....no down, extreme ARMS, and a lowering of credit standards. As the ARMS reset, these people have been forced out of that housing. Consquently, we have a huge oversupply of housing with falling prices. Already that lowering of demand has been felt in the commodity markets......the prices of most commodities have been falling for most of 2007. Only oil has bucked the trend and that's mostly because of the Contango effect on oil. While oil is still an important commodity, its not as important as it was in the 1970s and doesn't effect as many products. However, its impact is still significant. Having said that, I believe the pressures on the Contango impact on oil are easing. I think as we get closer to the end of Bush's tenure, we will see oil prices drop further. I am expecting by early April that oil will be trading in the mid to low 80s and could drop further by next November, depending on 2008/2009 winter forecasts. The bottom line is that all of the steps above are tantamount to borrowing growth from the future in order to feel good today. You can delay the consequences of bad monetary and fiscal policy only for so long. The longer you delay the worse the consequences. If you lower interest rates further you are not borrowing growth from the future....in fact, you will be encouraging growth to resume. For the past six months, the banks have done little lending and there is pentup demand. You will simply be exploiting that existing pentup demand. If I were Bernancke, I would stand pat on rates and I'd tell Congress not to spend a dime that's not paid for with increased taxes or cuts to other spending. Or better yet, I'd tell them to cut military spending and redirect that spending towards tax rebates to goose the economy. Bringing home the troops from Iraq would save us $120B per year. We could start there. I agree with you that the stimulus package is a joke and needs to be dropped. However, instead of tax cuts, I would direct that military savings towards improvements in our infrastructure. That takes care of two problems with one stone.....dealing with the deferred maintenance in American infrastructure while providing jobs for the down and out construction industry.