Wednesday, February 20, 2008

Here Comes Inflation

Like we needed this report to tell us what we already know.
Consumer prices rose in January, fanning concerns that high inflation may keep the Federal Reserve from maintaining its aggressive interest rate-cutting campaign.

The Consumer Price Index, a key inflation reading, rose 0.4% last month, according to the Labor Department. That matched the 0.4% jump recorded in December and exceeded the 0.3% rise economists surveyed by had forecast.

The more closely watched core CPI, which strips out volatile food and energy prices, rose 0.3%, representing the biggest jump in 19 months. Economists had expected a 0.2% rise after a 0.2% jump in December.

The rise in January left overall prices 4.3% above where they were 12 months earlier, up from the 4.1% rise on that basis in December.

Food prices were much higher in January. A recent driver of inflation, food prices jumped 0.7% from a 0.1% rise in December, the largest monthly increase since last February.
THis report was complied before oil hit $100.00 per barrel. Things just continue to decline economically but I feel the worst is yet to come.

Tuesday, February 19, 2008

How Secure Is Our Banking System?

US banks borrow $50bn via new Fed facility.
US banks have been quietly borrowing massive amounts of money from the Federal Reserve in recent weeks by using a new measure the Fed introduced two months ago to help ease the credit crunch.

The use of the Fed's Term Auction Facility, which allows banks to borrow at relatively attractive rates against a wider range of their assets than previously permitted, saw borrowing of nearly $50bn of one-month funds from the Fed by mid-February.
Why do they need to borrow these funds? The answer is that they have lost so much money during the credit crisis that they do not have the capitalization necessary to insure deposits. If these were small regional banks they would be in receivership. Who exactly is paying for this bailout? It is you and me, the American taxpayer. So we are asked to bail out these institutions due to their lack of regulation and the greed associated with the subprime crisis. What choice do we have? Doing nothing could mean the collapse of the banking system and the onset of yet another worldwide DEEP recession or even worse another great depression.

It is for exactly this reason that banking regulations need to be more rigid. We can no longer allow the industry to police itself. It is this lack of regulation that has led us here.
"The TAF ... allows the banks to borrow money against all sort of dodgy collateral," says Christopher Wood, analyst at CLSA. "The banks are increasingly giving the Fed the garbage collateral nobody else wants to take ... [this] suggests a perilous condition for America's banking system."

The Fed announced the TAF tool on December 12 as part of a co-ordinated package of measures unveiled by leading western central banks to calm money markets.

The measure marks a distinct break from past US policy. Before its introduction, banks either had to raise money in the open market or use the so-called "discount window" for emergencies. However, last year many banks refused to use the discount window, even though they found it hard to raise funds in the market, because it was associated with the stigma of bank failure.
What else do you need to see to understand how dire this situation is? The new age of the Robber Barons is here and the same devastating effects that occured in the 1920's are here again. Will we never learn?

Monday, February 18, 2008

Is The Middle Class Already Gone?

I started this website to highlight the plight of the American middle class. It was obvious to me that the average family now needed two workers just to afford the same lifestyle that had been common just a generation before. Why is this happening and how can this alarming trend be reversed? Now there are statistics to show this very dangerous slide.
Except for the late 1990s, pay has been stagnant for more than a generation, barely keeping pace with inflation. In 1973, the median male worker earned $16.88 an hour, adjusted for inflation. In 2007, he earned $16.85.

For many families, the stagnation has been moderated by the addition of a second paycheck as more women went to work, and their pay rose over the same period.

But the largest gains went to workers at the top of the pay scale. Now, economic worries are rising fastest in households with smaller paychecks, and that chasm is widening.

"Over the past decades, whether inflation was much higher or lower, or incomes grew faster or more slowly, there has never been such a wide divergence in the experiences" separating richer households from poorer ones, Richard Curtin, the director of the University of Michigan's consumer survey said in summing up the most recent figures.
How can any Democracy flourish when the middle class is being eliminated? The answer is that it can not. The biggest problem is educating the population on political matters. This didn't happen by accident. It happened as a result of middle class Americans voting against their own best interests. Just the other day I was driving about 90 miles north of NYC and spotted an older car with wheel wells that had been rusted through. On the back of the car was a bumper sticker "Vote Republican" and I thought this dumb ass can't even afford a semi decent car and yet he is voting Republican. It is the economic policies of the Republicans since Ronald Reagan that have caused the greatest redistribution of wealth in our history and his inability to afford a safe car.

The Republicans count on people like this fool being too politically stupid to make a reasoned choice and unfortunately many in the middle class fall into this trap.