Wednesday, February 27, 2008

Heading for the “HURT” locker

While my quest for a new job and running all of the hurdles to transition from the Navy have taken up a significant amount of my intellectual capacity and my time; I have gotten an uneasy, No, Down Right QUEASY feeling about the U. S. Economic health in general. While I have had the head to the grindstone doing the Navy thing for the past few (20) years I have paid very little attention to the News in general because it seemed to consist mainly of either (1) sensational fodder,( 2) feel-good fodder or (3) sensational- feel- good fodder. Job research has forced me to pay a bit more attention to the internet and the channels on TV to try and figure out the overall picture of things when I am cut loose. While I am no economist or even claim to have more than a layman’s understanding of complex economics, it seems with the complete loss of “primary coolant” so to speak on the real estate market and the subsequent melt down of real estate and all the financial markets that are tied in like a bad ponzi scheme, our economy has started to flounder.
Now, we are looking at energy prices further impacting our standard of living.
Gasoline prices, which for months lagged behind the big run-up in the price of oil, are suddenly rising quickly, with some experts saying they could approach $4 a gallon by spring. Diesel is hitting new records daily, and oil closed at a record high of $100.88 a barrel on Tuesday increases that could not come at a worse time for the economy. With growth slowing, energy increases that were once easily absorbed by consumers are now more likely to act as a drag on household budgets, leaving people with less money to spend elsewhere. These costs could worsen the nation’s economic woes, piling a fresh energy shock on top of the turmoil in credit and housing.
YIKES, $$$ 4 dollars a Gallon $$$ While the day was to eventually arrive when gasoline was going to become more expensive than milk or bottled water. You just don’t fill a 20 gallon tank with milk or bottled water. That’s 80 Bucks for a fill. Then I run across this little nugget :

The Fed chairman acknowledged that the central bank faced increasingly contradictory pressures of slowing growth and rising consumer prices. But his bottom line was that, for now, the top priority would be fighting a recession rather than fighting inflation.
Mr. Bernanke’s view of the state of the economy, part of his semiannual appearance before Congress, came as the dollar sank to a historic low against other major currencies, introducing a possible third dimension to the economic problems the Fed chairman must tackle all at once.
Having already cut short-term interest rates by almost half since September, Mr. Bernanke painted a grim picture of consumers reluctant to spend, businesses reluctant to invest and banks reluctant to lend. On top of it all, housing prices keep falling.
“The economic situation has become distinctly less favorable” since last summer, he told the House Financial Services Committee. In words that investors immediately recognized as a hint of lower rates, he vowed to “act in a timely manner” and “provide adequate insurance against downside risks.”
The Fed’s decision to err on the side of faster growth poses risks. Ever since the wrenching experience with stagflation in the late 1970s, the rule of thumb in monetary policy has been that revving up a slow economy is far easier than slowing inflation once it becomes entrenched.
The hope is that lower interest rates will encourage consumers and businesses to spend more, while the risk is that the spending will aggravate inflation.
But the success or failure of the Fed’s strategy could depend on something outside Mr. Bernanke’s immediate control: foreign confidence in the American dollar and foreign willingness to keep financing the United States’ huge external debt.
The dollar has plunged 24 percent against a basket of six major currencies in the last four years, and on Wednesday it slipped to its lowest level yet since the United States let the dollar float freely in 1973.
A weak dollar can be both good and bad for the United States economy. It tends to bolster American exports by making them cheaper in foreign markets, but it also pushes up inflation by raising the cost of foreign imports. And while the United States pays for foreign oil in dollars, many analysts contend that part of the recent run-up in oil prices was tied to the steadily declining value of the dollar.
Over the long haul, the bigger worry for Mr. Bernanke may not be import prices as much as interest rates and the dollar’s value. Huge inflows of cheap foreign capital helped keep interest rates for mortgages and businesses low even as the Fed raised its benchmark overnight rates from 2004 to 2006.
If foreign investors become more wary, in part because of the dollar’s declining value, some economists worry they will not invest in the United States unless they get higher long-term interest rates — even as the Fed lowers its overnight rate.
“I don’t think there is any great danger of hitting a trigger point where people cut and run from the dollar,” said Kenneth Rogoff, a professor of economics at Harvard and a former director of research at the International Monetary Fund. “But there are hidden costs. The dollar’s pre-eminence in the international financial system provides a huge bonanza to the United States. We pay lower interest rates than we would otherwise. We can probably borrow money on short notice more easily than we could otherwise.”
Mr. Bernanke did not mention the dollar’s falling value on Wednesday, but he has said on previous occasions that he saw no sign that the dollar was in danger of losing its status as the world’s leading reserve currency.
On Wednesday, Mr. Bernanke carefully acknowledged that inflation had accelerated in recent months and would make the Fed’s job much more difficult if it became ingrained in public expectations.
“Any tendency of inflation expectations to become unmoored or for the Federal Reserve’s inflation-fighting credibility to be eroded would greatly complicate the task of sustaining price stability and could reduce the flexibility of the F.O.M.C,” Mr. Bernanke warned, referring to the Federal Open Market Committee, which sets interest rates.
“Accordingly, in the months ahead, the Federal Reserve will continue to closely monitor inflation and inflation expectations,” Mr. Bernanke said.
But Mr. Bernanke made it clear that Fed officials are more worried about a sharp slowdown and rising unemployment than they are concerned about inflation.

I don’t see how that they think that the economy is going to boost it’s self off its keister. Most “Consumer’s” are folks who mortgaged their home and property to the hilt to have the toys and goodies. The housing market goes in the toilet, and all that free cash with it. Now comes a second sucker punch with the rise energy prices both due to the falling value of the dollar and also the increased competition for the crude and refined oil that is out there.
Enough rambling for the night..
Well, any one want to put their thoughts out there and comment??? I would like to see what you think.

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