Benson's Economic & Market Trends - An Economic Heart
Attack Brought on by Sugar and Fat By Richard Benson
Jan 23 2008 9:53AM
The other day I was frankly stunned to see
President Bush in a panic. He was flanked by the Secretary
of the Treasury and the head of the Federal Reserve as they
rolled our sick economy onto a gurney to the OR. Congress
witnessed this as defibrillator paddles were thrust into the
countrys open chest and screams of clear
were heard as far as Washington, as a jolt of $150 billion
dollars in tax cuts was administered. Its a rare sight,
indeed, to see not only the President of the United States
but the Secretary of the Treasury, Chairman of the Fed, and
both parties in Congress, in panic mode pushing for greatly
increased government spending. Obviously, government does
not see itself as the problem!
Financial markets around the globe sensed
the panic and responded dramatically, creating volatile and
sinking markets overnight. Our economys heart attack
sent the financial markets swooning and even with the infusion
of cash mentioned above, flu-like symptoms still exist. But
what can one expect given the economys diet over the
last five years which consisted of mainlining easy money
sugar, and the consumption of mountains of fat (in the form
of trillions of dollars of new consumer and corporate borrowing).
This risky diet has finally taken its toll on the economys
waistline.
Today, in a surprise move, the Fed swiftly
responded as attending physicians, led by the Paulson and
Bernanke, imposed an interest rate cut of 3/4 percent. This
move was intended to offset a potentially huge sell-off in
the stock market, but it indicates the Fed will continue to
feast on sugar, and the government will continue to offer
a high-fat diet to the feeding-frenzy American consumer in
the form of lower interest rates and easy money. Forget about
savers; theyre not only forgotten but mugged in broad
daylight by the Fed and US Treasury as interest rates drop
well below the rate of inflation, and the rate of inflation
is forced up.
Inflation is raging now and even with hedonic
adjustments and chain weighting tricks, the CPI is up 4.1
percent year-over-year.(Without the tricks used to distort
the CPI down, the actual inflation rate is probably more like
6 percent). The American worker is also on life support because
the cost of food and fuel is eating them alive and stagnant
wages arent helping to pay the bills, now that home
equity extraction is no longer an option.
So where do we go from here? Todays
prescribed cure (more like a band aid solution over a sword
wound) will fuel even fatter federal deficits funded by new
money printed up by the Federal Reserve. So the prognosis
for the economy may not be death by heart attack, but it will
remain in intensive care or in a comma for years. The citizens
of our great country experienced an intense sugar rush over
the last decade as their waistlines expanded and they ran
up very fat personal deficits amounting to over $14 trillion
dollars. (It is estimated that $500 billion dollars of that
easy money created debt could be in default very soon). Too
much sugar, too much fat, a collapsing dollar, and higher
inflation can cause an economic heart attack. It happened
this week, and you should watch for it to happen again and
again.