The Economy Is In Deep, Deep Trouble

The Economy Is In Deep, Deep Trouble

Question for Bernanke: "Do you have the cojones to raise rates?"
By Mike Whitney
8-15-9

Booyah. It's morning in America. The jobless numbers are stabilizing, the stock market is sizzling, quarterly earnings came in better than expected, traders have turned bullish, housing is showing signs of life, and clunker-swaps have given Detroit a well-needed boost of adrenalin. Even Cassandra economists --like Paul Krugman and Nouriel Roubini--have been uncharacteristically optimistic. Is is true; did we avoid a Second Great Depression? Is the worst really behind us?

Maybe. But there is only one way to find out for sure. Raise rates.

Bernanke should welcome the opportunity to show everyone how he's pulled the world's biggest economy back from the brink of disaster. All he needs to do is stop giving away free money, shut down a few of his so-called lending facilities, and stop manipulating interest rates by purchasing mortgage-backed securities (MBS) from Fannie and Freddie. How hard is that? The S&P 500 has skyrocketed 48 percent since March 9. What's Bernanke waiting for; a 75 percent increase; a 100 percent increase??? How high do stocks have to go to convince Bernanke that the economy can stand on its own two feet without the torrent of cheap liquidity issuing from the Fed?

Bernanke can prove to his critics that the US economy doesn't need the Fed's monetization programs and price fixing; that it doesn't need the liquidity injections and the buying up of junk mortgages. ($80 billion last month alone) After all, as Bernanke opines, "The fundamentals of our economy are strong!"

Right. Now prove it.

All Bernanke has to do is boost rates by a point or two and demonstrate that he's willing to mop up some of the $13 trillion he's pumped into the financial markets. With just one announcement, the Fed chair could show our biggest creditor--China--that he's serious about defending the dollar and the trillion dollars of US Treasuries China purchased believing that the US was a responsible trading partner who would never write checks on an account that was overdrawn by $12 trillion. (The National Debt)

So, go ahead, Ben. Raise rates, shut down the printing presses, roll up the corporate welfare programs. Be a He-man. Make your critics eat their words. This is from Bloomberg News 8-12-09:

"The Fed's policy-setting Open Market Committee will today keep the target rate at zero to 0.25 percent and retain plans to buy as much as $1.45 trillion of housing debt by year-end to help secure a recovery, analysts said. The FOMC's statement is expected at about 2:15 p.m. in Washington."

Hmmmmmm. So all the "green shoots" happy talk is pure gibberish, right? There is no recovery. Bernanke plans to continue flooding the financial system with cheap liquidity. It's all a fraud. Things aren't better; they're worse.

Look at the facts.

There were 1.9 million foreclosures in 2009 in the first six months, and there will be another 1.5 before the end of the year. Is that better? According to Bloomberg: "A glut of unsold homes is also pushing down prices. The 3.8 million homes for sale in June would take 9.4 months to sell at the current pace of transactions, according to the National Association of Realtors. The inventory turnover rate averaged 4.5 months in the six years from 2000 to 2005.....More than 18.7 million homes, including foreclosures, residences for sale and vacation homes, stood vacant in the U.S. during the second quarter. That compared with 18.6 million a year earlier, the U.S. Census Bureau said July 24

Total home sales fell 23.7 percent in June versus a year earlier." Bloomberg)

http://www.rense.com/general87/econn.htm

This is not the only article and economist that is stating that the worse is yet to come.
The guy that predicted this entire event years ago and was called every name in the book - says that a depression is coming still.

I can't remember his name but he as on Fox Business yesterday on Cavuto's show.

Again he was called names and people touted all the reasons why he was wrong - but they did that the last time too - and he ended up being the only person, that called it like he saw it and was right.

Let's just say that I am going to err on the side of caution and keep my money close to the vest - i.e. no spending except on neccessities.

Between Obama and Bernanke who knows what will happen.