It’s amazing how fast we’ve become acculturated to massive stock market swings, anywhere from 500 points to 1000 points is becoming passé’. For a while, the presidential race provided a diversion from the fact that the global economy in general, and the US economy in particular, are in big trouble. We’re seeing a steady procession of industries lining up outside the door of House Speaker Nancy Pelosi seeking government assistance. The Automakers appear to be next in line and if they get some: can the Airlines be far behind?
The Congress is planning “tax cuts” (redistribution from the rich to the poor) for people who don’t pay taxes and massive spending on infrastructure in yet another attempt to stimulate the economy. The only sectors of the economy that are adding jobs are Government and Education and Health Care! (Didn’t Government, Education and HealthCare actually merge some time back? I thought they did. Oh wait! That’s going to be this year!)
The funds intended to prime the pumps for lending between banks has gradually worked but by no means fixed the credit crunch. It’s quite possible we could be right back at square one given the right set of events. Bank Executives are managing to survive with some occasional lavish resort parties and guarantees of free legal representation if they just happened to commit crimes in the performance of their jobs. I guess it is stressful for bankers to run the banking system into the ground and they need a little R&R after such trauma.
There’s a new President-Elect in town that’s determined to make the economy Job One. Obama will doubtless be naming his Treasury Secretary soon and he’s having a high profile meeting today with all his economic guru’s. Most Americans will be understandably relieved to learn that Carl Marx and Saul Alinski are not expected to attend this gathering of economic all stars.
State and local governments across the nation are looking at their balance sheets with something akin to horror and announcing some perfectly frightening tax hikes are necessary because of plunging revenues. California wants about 5 billion bucks and its understood that they may need to borrow that money from the US Treasury. After all: If its good enough for General Motors its good enough for The Peoples Republic of California.
The Dollar has strengthened of late as Europe has had to face the prospect of its “emerging nation’s” loan bubble as being potentially much more destructive than our subprime debacle; and as a result the dollar has gone up. Meanwhile our fearless Government is preparing to auction off mega-billions in new securities, to anyone who will buy them, so that they can buy the auto industry, doubtless the airlines, and become the controlling partner in many of our state and local governments. It just goes to show that the US Government can spend money much faster than scared European big shots can shovel money over to us.
The pending “sales of existing homes” is down about 4.6 percent this last month and some folks are suggesting that we could have a 9% unemployment rate in a year or so. It wont matter because I’m sure there’s a plan to guarantee all our mortgages so we’ll have a roof over our heads, and I’m sure theres a government plan to employ people in worthy and productive government enterprises so we don’t have to fret.
There is some wonderful news coming our way, in this wilderness of despair and broken institutions and that is FREE MONEY! Yes that’s right: Free Money! Not for you and me, naturally, but zero interest loans for the banks, I wonder If they’ll give us some? I suspect that they might start offering free toasters if you open a savings account with them while they give you a generous 1.874% with your ten buck toaster. (They might as well give them away because people are too scared to buy them as they tighten their belts!) I have no doubt that if the toaster promotion becomes too burdensome on the banks they’ll just get more money from the US Treasury (aka you and me) because banks as we know are “too big to fail”. Consider this from Bloomberg:
Nov. 7 (Bloomberg) — The age of free money may be at hand.
As major central banks slash interest rates with unexpected speed, benchmark borrowing costs are now below core inflation for the first time since the early 1980s, and policy makers are signaling they will go deeper.
Yesterday’s cuts by the Bank of England and European Central Bank, which came with the Federal Reserve and Bank of Japan on the cusp of zero rates, are a bid to shock life back into their recessionary economies and strained money markets. It may be an uphill battle as consumers and businesses show greater interest in saving than spending, and banks hoard capital rather than lend it.
“It’s the race to zero,” said Stewart Robertson, an economist at Aviva Investors Ltd. in London, which manages about $230 billion. “There’s no obstacle to more rate cuts.”
The U.K. central bank led by Governor Mervyn King yesterday axed its benchmark rate to 3 percent, the lowest level since 1955. The reduction of 1.5 percentage points was the biggest in 16 years. The ECB followed with its second half-point cut in a month, to 3.25 percent, and President Jean-Claude Trichet declined to rule out further moves south.
The action in Europe, which extended to reductions in the Czech Republic, Switzerland and Denmark, followed decisions last week by the Fed to drop its key rate to 1 percent, matching the lowest in a half-century, and the Bank of Japan to cut to 0.3 percent in its first paring in seven years. The central bank of South Korea today cut its benchmark for a third time in a month.