Tuesday, January 22, 2008

Will The Cure Be Worse Than The Disease?

Is the cure just for Wall St. with the little guy left holding the bag down the road?
The wobbly economy is overtaking Iraq as the issue weighing most heavily on the minds of America's voters. And Washington has noticed. The White House and Congress are almost certain to enact some kind of stimulus package. But like all such temporary, feel-good measures, it will generate a quick blip in growth that will quickly evaporate. In reality only one player has the power to do anything swift and decisive: the Federal Reserve. And its chairman, Ben Bernanke, has already made his intentions abundantly clear. Unfortunately, the cure he's prescribing may be worse than the disease.
When I read this I was not surprised. How can we regain fiscal health with an employment market that has basically stopped creating high paying jobs. The Bush Administration touts their record of steady job growth but what is the quality of the jobs they have created? The service sector is growing but we all know that those jobs pay much less than the manufacturing jobs that they are replacing.

Wall St. artificially pushed up the price of homes with the subprime mortgage mess and that helped boost profits on Wall St. Those disastrous unregulated decisions have left us with an economy in peril and a Federal Reserve with few options.
Bernanke is setting the stage for an even bigger recession down the road. Just as the ultra-low rates of the early 2000s created many of the problems we're experiencing today, pumping money into the system would probably stoke inflation, forcing the Fed to hike rates sharply in the near future. "It's better to take a small recession and kill inflation immediately instead of facing high inflation and a really big recession later," says Carnegie Mellon economist Allan Meltzer.
So will the cure kill the economy down the road? Only time will tell but anything touched by the Bush administration turns to shit and the economy has little chance of escaping this reverse midas touch. The next President will be left with a colossal mess on more fronts than can be printed in one short blog. Will the American people be smart enough to understand that this was done by the Bush administration and not lay blame on our next President? Since they elected this intellectual midget twice that seems unlikely and because of that the next President will be forced to choose between popularity and very hard decisions. There are no good options left in the United States after Bush.

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