Posted by Michael A. Kamperman on August 19, 2009
In today’s New York Times, Warren Buffet wrote an Op-Ed saying that the federal budget deficit was too high in relation to the country’s economy and is unsustainable. He made an excellent point that the world is only in a position to naturally invest about $900 billion per year in U.S. Treasuries from a combination of growing U.S. savings and growing foreign reserve surpluses from our key trading partners. He said that the $1.8 trillion annual budget deficit is twice as much as the readily available capital to finance the debt. He then warns about the dangers of printing money to cover the deficit claiming it will kick off high rates of inflation and says the U.S. doesn’t want to risk becoming a banana republic. He states we risk collapsing the currency if we print too much money, or if we allow our debt to GDP ratio to continue to rapidly climb beyond the 56% ratio it is expected to reach by the end of the year. Warren concedes Japan and Italy have much higher debt to GDP ratios than the U.S. does, but we dare not test the upper limit.
The only problem with Warren’s quaint editorial is the facts do not support his fears. If President Obama follows Buffet’s advice he will plunge the world into economic Armageddon. What will happen to the economy if the federal government stops spending money? Gone will be extended unemployment benefits and support for Medicaid payments to the states. Gone will be much of the defense budget at a time we are fighting on two fronts. Or, gone will be Medicare and Social Security. If we continue to borrow our debt to GDP ratio will grow, as will our interest payments on the debt. But Italy and France have a debt to GDP ratio of over 100%. Germany’s is over 80%. Japan has a debt to GDP ratio of over 200% and has been printing money for years. The British pound has rallied 20% against other currencies in the last 6 months and Britain is printing more money compared to its GDP than any country in the world other than Zimbabwe. Britain also has a debt to GDP ratio over 100%. Yet these are the currencies Mr. Buffet fears the world will flee to. These facts were not part of Mr. Buffet’s Op-Ed.
Compare Mr Buffet’s position with that of Bank of England Governor Mervyn King, who is the equivalent of our Fed Chairman Ben Bernanke. It was just revealed that the normally hawkish Governor King wanted to increase the last round of quantitative easing in Britain by 75 million pounds, rather than by the 50 million pounds the board voted for. The only other times Governor King was voted down he wanted to raise rates more than the committee in both 2005 and 2007. So the question in my mind is what has turned the usually hawkish Governor King in the world’s most dovish central banker? I have a feeling he knows where the bodies are buried and he sees the deflationary spiral the world has entered. One of these men is seeking to lead the world down the wrong economic path. The worshippers of the god of inflation can worship at Mr. Buffet’s altar all they want. But I’m following the path of Governor King. Deflation is the global threat and it is gaining a foot-hold in all of the major economies of the world. In a world without wage pressures, declining demand, and massive excess capacity in every industry, those seeing inflation are seeing a mirage.
Posted by Michael A. Kamperman on August 18, 2009
Many describe the state of our current economic malaise as The Great Recession. Others have used more dire terms like The Second Great Depression, The New Great Depression, or The Great Depression 2.0. But these labels are simply attempts to measure the severity of the global economic collapse to compare it to past economic crisis. Since the economy has not yet recovered, no one can say with certainty how deep the global economic contraction will ultimately be. It is no secret I am firmly in the New Great Depression camp. But I have been thinking we need a new term that describes what the economy is going through, rather than one that just measures how low we ultimately go. Therefore, I am coining the phrase “The Great Unraveling” to describe the economic calamity we are living through. By understanding what we are experiencing it can help people calculate on their own how much further we may have to fall before we reach bottom. The misnomer The Great Recession has many analysts getting out their charts of previous recessions in attempts to predict when this so called recession will end. However, what we are experiencing is not similar to any of the post World War II inflationary era recessions.
“The Great Unraveling” is a term that describes the process the global economy is now working through. This process will continue until it has run its course and the untangling and unraveling of a global economy that has relied on too much debt is completed. Excessive mortgage lending in the U.S and most of the rest of the developed world led to a significant rise in real estate prices. For example, pedestrian 1,000 square foot apartments in New York (Manhattan), London, Paris, and Tokyo started selling for over $1 million and 2,000 square foot 30 year old ranch houses in Southern California that were not near the beach began selling for over $500,000, despite the fact the houses were located in middle class neighborhoods. When there weren’t enough legitimate borrowers left to keep the bubble going, the standards for mortgage lending fell all the way to outright fraud with no money down loans for the purchase of these properties given to unemployed people with bad credit. When the credit rating agencies stamped over 90% of pools of these loans AAA they killed the shadow banking system that supplied almost 75% of the nations credit needs. Hence, our economy is left without the ability to use the house as an ATM machine. The economy will continue to contract as long as the consumer is forced to restore their balance sheet and their access to credit remains tight. We are living through the greatest unwinding of a bubble since the Dutch Tulip bubble. Most of the imbalances of the global economy will be brought back into balance before economic growth resumes.
Proof that debt is still unwinding came from a recent federal government report that loan balances at the 22 largest recipients of TARP funds fell by $45 billion in the month of June. The money supply is still contracting. It took 20 years after the oft forgotten debt induced Panic of 1873 for the global economies to resume strong growth in the 1890’s. It took the start of World War II to catapult the global economies out of the Great Depression of the 1930’s 10 years after it began. If we continue to adopt the Washington strategy of watchful waiting it could take 10 to 20 years before the debt induced deflationary depression we have entered finishes unraveling on its own. It could take longer and civil society could begin to come apart at the seams in the interim. I remain an advocate of shock and awe quantitative easing to stop the otherwise inevitable Great debt Unraveling in its tracks.
Posted by Michael A. Kamperman on August 13, 2009
Don’t ask me because I don’t know the answer. For many years now the U.S. consumer has been the source of final demand and has driven the global economy forward. Because of the collapse of available consumer credit, the U.S. consumer has reigned in their spending as evidenced by today’s disappointing retail sales report. Why some were surprised that rising unemployment and restricted access to credit led to lower retail sales is the real mystery. They explain the aberration in their mind away by guessing that since 200,000 people purchased a clunker in the last week of July that caused 300,000,000 people to close their wallets for the whole month. Who are these people that get passed off to us as experts? Today it was also reported that the Euro-zone economy contracted less than expected and that France and Germany actually had a small amount of positive economic growth in the second quarter. But this growth came from the calculations of modern alchemists known as economists. Because imports dropped faster than exports fell in both countries, the alchemists claim they are now growing. Countries with declining imports are buying less from others because they have weak economies. In no way are they positioned to drive global growth going forward. Many will claim China is prepared to drive global growth forward. China’s has a production oriented economy that is dependent on selling goods to the West. The West is buying less and less. China calculates its economic growth based on production and not based on final demand. So if China builds something nobody wants and sticks it in a warehouse they claim positive growth. If China has such a strong economy why are their imports falling too?
My concerted opinion remains that the key to restoring global economic growth relies heavily on reviving the spendthrift U.S. consumer. With excess debt levels and deflation prevalent in the U.S. and the rest of the world, the only way to restore the U.S. consumer is for the Fed to pursue a much more aggressive policy of quantitative easing. A step they failed to take at yesterday’s meeting. According to the economic data the U.S. economy was still declining in July. The predictions that the recession has ended by some alchemists and the consensus of the alchemists that the U.S. will see positive economic growth in the second half of 2009 looks to be in jeopardy right now. The problem is these alchemists continue to talk about how long past post World War II recessions lasted and base their forecasts on the false assumption that we remain in the inflationary growth economy that defined the first 62 years of the post-war period. Those days ended in August of 2007 and we have returned to a debt-induced deflationary depression.
Fortunately, the Fed with at least three blind mice as voting members did not signal an end to further shots of quantitative easing despite wide spread media reports to the contrary. What the timid Fed did was they punted the ball to the next meeting to make a final decision. Hopefully they can open their eyes and see the economic truth between now and then.
Posted by Michael A. Kamperman on August 11, 2009
The Federal Reserve has a dual mandate; economic growth and price stability. There can be little question that the economy would benefit if the Federal Reserve increased its program of quantitative easing (printing money) at tomorrow’s meeting. But what the markets and the media are missing is that the Federal Reserve needs to print more money to maintain price stability. Price stability requires limiting the amount of inflation or deflation that impacts the purchasing power of a dollar for a domestic U.S. consumer. This should not be confused with whether the value of the dollar is rising or falling versus other currencies like the euro, the pound, or the yen. Printing money to maintain price stability will seem counter-intuitive to most observers of the markets and the economy. The knee-jerk response is usually that if the Fed prints more money we will eventually have hyper-inflation. The Federal Reserve needs to ignore the voices of ignorance at tomorrow’s meeting and follow the lead of the Bank of England and print more money, and lots of it. The reason is the U.S. economy is experiencing levels of deflation that are approaching the levels of deflation last seen in the early 1930’s during the Great Depression. Most people have missed this fact due to the use of owners’ equivalent rent in the CPI index, which dramatically understates the decline in home prices in the U.S.
The official CPI numbers state that prices fell 1.4% in the last 12 months in the U.S. The CPI currently uses owners’ equivalent rent to calculate the price of home ownership. Owner’s equivalent rent accounts for over 23% of the CPI Index. In the last 12 months this calculation has risen 1.9% and has contributed a positive .4% to annual CPI. Say WHAT? That’s right; the official CPI statistics calculate that it is more expensive to purchase a home today than it was 12 months ago in the U.S. An alternative measure of home prices is the Case/Shiller index. This index has fallen over 17% in the last 12 months and much more accurately captures the trend of the costs of purchasing a home for a U.S. consumer. If the CPI used changes in home prices in the CPI index rather than owners’ equivalent rents, then the positive .4% housing contributed to CPI in the last 12 months would actually have been a negative detraction of approximately 3.9%. This means the real rate of deflation in the U.S. over the last 12 months is 5.7%, not 1.4%. If our CPI were reported as minus 5.7% over the last 12 months, then Washington would be much more concerned about deflation.
From 1929 to 1933 the U.S. economy experienced mid single digit deflation for 4 years in a row. But the official CPI Index in the 1930’s used home prices to calculate the cost of purchasing a home for a consumer, not owner’s equivalent rent. The federal government changed the calculation for the cost of homeownership in the CPI Index in January of 1983. We will find out tomorrow if the Fed understands that deflation over the last 12 months is tracking the levels of deflation of the Great Depression. If they get it they will surprise the markets and increase the level of their quantitative easing program. If they don’t get it, then they will stand pat. The Obama Administration has already checked out on further assistance to the economy in the near term. Mr. Bernanke is our last and best hope to battle the economic crisis. My objective in detailing this is not to be value added by helping people understand and interpret the statistics they are looking at. My objective is to give all Americans a wake-up call and say we are facing a New Great Depression and we need to insist Washington takes action.
Posted by Michael A. Kamperman on July 27, 2009
An analysis by the Wall Street Journal showed that the total loan portfolios of the nation’s 15 largest banks shrank by an aggregate of 2.8% in the second quarter. Most of the lending that did occur in the quarter went to mortgage refinancing and credit renewals for existing business customers. Less than half of the loans that were made represented new commitments by the banks representing new transactions for the economy. The banks claim that demand remains weak from potential borrowers, and potential borrowers claim the banks have overly restrictive lending standards. The truth is both viewpoints are true. Many of the highest quality borrowers are looking to contract, not expand. Meanwhile, the banks have significantly raised the bar on what it takes to qualify for a new loan, whether it is a consumer loan or a business loan. According to the WSJ, loan portfolios at the nation’s 15 largest banks have decline by 10% from year ago levels after acquisitions are netted out. The fact that lending is still contracting at the same pace as it did in the last couple of quarters means there is a real possibility the economy contracted at a similar pace as well. Economists are looking for a much more benign contraction in U.S. second quarter GDP. I would not be surprised if the number is much worse than expected, just like it was in Britain.
Fed Chairman Ben Bernanke, in a much hyped Town Hall style meeting to be broadcast this week on the PBS News Hour program, claimed that back in 1929 and 1930 the world was experiencing a normal recession. Then, major Central Europe lenders (Austrian Creditanstalt) faltered and further panic set in causing the Great Depression. His thesis is that since the large “banks” have been rescued the crisis has been averted. But we have no way of knowing if the rumors of trouble with certain banks indeed kicked off the Great Depression. It could be that the event was just the next inevitable phase of the crisis and the back then hoped for “green shoots” of 1931 vanished. We have built up significant hope in 2009 that the worst is behind us and blue skies are just around the corner. However, the shrinking credit extended by our largest banks is painting a very different story.
What I think Chairman Bernanke is missing is the world of lending has changed since 1931. Back then most of the credit extended in the economy came from commercial banks. If the commercial banks were lost the economy would be lost with them. However, in the 2000’s the vast majority of lending has come from the shadow banking system fueled by the asset-backed securities market. This market is dead and as CIT can attest the shadow banking model is broken. Yet our largest banks have not only failed to pick up the slack, they too are shrinking the credit they extend to the economy. Perhaps the real cause of the Great Depression was the inevitable “Great Un-Ravel” (yes I just coined that term) that was destined to occur one way or another as a global economy with too much debt ran into contracting economies and deflation. Just like early 1931, we have a global economy with massive imbalances that are still unraveling. We just don’t know what will be the next shoe to drop.
Posted by Michael A. Kamperman on July 24, 2009
For those thinking that the U.S. can ride the coat-tails of the global economy to recovery, think again. GDP in the U.K. fell by a worse than expected .8% in the second quarter. This dismal performance included the benefits of stimulus spending, .5% central bank interest rates, bank rescues, and quantitative easing. In Spain, unemployment for the second quarter reached 17.9%. Many Spanish construction workers are on a temporary status and are thus easier to lay-off than other workers in other parts of Europe. Admittedly, those championing growth prospects in the rest of the world often refer to the emerging economic BRIC countries, especially China. Well, in the first half of this year consumer price inflation fell 1.1% from the previous year. This in spite of significant stimulus spending on public projects by the Chinese government and the government and the government’s insistence that state own banks ramp up lending. The state owned banks supposedly doubled the lending rate from the year before. While these actions created a second quarter growth rate in China of 7.9%, it is strange that China is experiencing deflation. The rampant growth rates in China over the last several years have been accompanied by high single digit rates of inflation. In fact, inflation had been a key concern for the Chinese government up until now. To me, Chinese deflation is signaling a weakening Chinese consumer and a weakening Chinese private sector economy.
The Obama economic dream team needs to figure out how to generate internal demand, rather than chase after some pipe-dream of export led growth. And the Federal Reserve needs to up its program of quantitative easing and print more money before deflationary forces take hold in the global psyche. Once the desire to save replaces the desire to spend it could take a generation or two to reverse the psychic fabric of society. The economic paradox we face is that while spending too much got us into our economic mess, it only by spending even more that we can get out of it. Otherwise, the debts that are weighing down the economy will become even more difficult to deal with as global GDP shrinks and deflation decreases the value of assets and earnings.
Posted by Michael A. Kamperman on July 10, 2009
In his column in today’s New York Times, Paul Krugman highlights the lack of political will in Washington to step up and do more right now to help the clearly struggling economy. He raises the question “what the president and his economic team should do now?” Professor Krugman wrongly assumes the Federal Reserve is out of bullets. The Federal Reserve still has quantitative easing available as a tool to stimulate the economy. The Fed should get a backbone and begin purchasing trillions of dollars worth of U.S. Treasuries right now. What the president should do is stake his presidency on turning the economy around. Whether President Obama and his advisors realize it or not the die for his presidency is already cast, and as this economy goes so goes his presidency. President Obama is not inheriting the same situation that FDR inherited. For comparison purposes, President Obama assumed the presidency at the end of 1930, not the spring of 1933 like FDR. The world didn’t realize they had entered the great depression at the end of 1930. By 1932, the voters in many countries were ready to throw the bums out and try anything. President Obama will become the next Herbert Hoover if the economy keeps sliding, not the next FDR. Without significant intervention on multiple fronts, including quantitative easing, the debt-induced deflationary depression we have entered will turn in to a new great depression. If President Obama understood that his whole presidency is on the line, then he would toss his cautious and patient approach aside and he would be willing to take risks. What needs to be done to restore the economy starts with throwing out the window conventional wisdom and the post World War II economic playbook.
Professor Krugman wants a larger stimulus package. But temporary measures will not restore the confidence of businesses and consumers to spend money in the face of rising unemployment. What President Obama should propose is permanent stimulus. The U.S. should immediately give all recipients of Social Security a 20% raise. And, the eligibility age for full retirement should be lowered to 60. Additionally, the eligibility age for Medicare should be lowered to 60 as well. Most people cannot afford to retire if they have to pay for the full cost of healthcare. It will cost approximately $120 billion per year to offer all Social Security recipients a 20% raise, and it could be implemented in less than one month. It will cost approximately $180 billion per year to lower the age for full Social Security benefits to 60. The details for the cost estimates can be found in the book How America Can Escape the New Great Depression. Most of the extra $300 billion per year in checks will be spent by our older consumers. Because the Social Security checks are permanent, some recipients will actually go out and commit to a new car loan, or a new mortgage. It will cost the federal government approximately $100 billion per year to lower the eligibility age for Medicare to 60. This will be a form of permanent stimulus to employers who will see the health care costs permanently lowered for their older workers. Lowering overall payroll costs will prevent some layoffs and may he even lead to a few new hires.
The biggest benefit is we will reorder our society. The U.S. will have millions of new relatively healthy retirees who can volunteer for the charity of their choice. And, the retirees will open up jobs for younger workers boosting their confidence. All of a sudden the unemployment rate will go down because people will have left the workforce for the right reasons. Rather than putting more stimulus spending in the hands of Congress to build more bridges to nowhere, let’s put the stimulus money in the hands of the people. The critics will say this creates another unfunded liability between now and 2109. It can be paid for if the Fed will print money and repurchase $10 trillion worth of our outstanding Treasury bonds. Other critics will say printing money will be inflationary. The forces of deflation are very powerful right now. We need the Fed to try and create some inflation. We need for home prices to stop going down and start going up. Zero percent interest rates are not doing it. President Obama, have the audacity to give us hope.
Posted by Michael A. Kamperman on July 7, 2009
Today Dr. Laura Tyson, a member of the President Obama’s Economic Advisory Council, called for a second economic stimulus plan focused on infrastructure spending. Unfortunately, the White House quickly said there was no immediate need for a second stimulus plan since they were still monitoring the effectiveness of the first plan. Considering that the unemployment rate of 9.5% is well beyond the Administration’s worst case assumption for 2009 of 8.9%, just what in the world are they monitoring? However, the key reason for the collapse of the economy and for its failure to revive is the credit markets broke and are still broken. The media’s focus on Dr. Tyson’s comments helped obscure the much more important insights from an article in today’s Financial Times titled Under Restraint, the link to which is found in the far right column. This article details how the securitization market for loans fell apart in 2007 and remains broken in the middle of 2009. The securitization market allowed banks to make mortgage loans, auto loans, commercial mortgage backed loans, and credit card loans, and then sell the loans to investment banks for a fee. Importantly, the banks also sold all of the risk and could then make new loans with the proceeds from the sale. This significantly levered the ability of a bank to lend money off of its existing capital base. The investment banks pooled the loans together and sold them to investors all over the world in tranches, most of which were rated AAA by the credit rating agencies. The subprime debacle killed this market, and it will not be coming back in its previous form.
The problem is the securitization market accounted for $2.5 trillion in lending to the real economy in 2007. Most of the lending support offered by the Federal Reserve has propped up other areas of lending, and not the lending that came from the securitization market. The banks simply do not have the capital bases to absorb the lost lending from the securitization market. This is the root cause of the credit crunch. Until it is fixed the world economy will continue to not have adequate access to cash to grow the economy or stave off deflation. Yesterday, I read that an employed woman with a credit score of 705 was turned down by her local bank for the first time ever. She was attempting to purchase a $10,000 used car. If people with credit scores over 700 find credit conditions tight, imagine what it is like for those with scores under 690. Over half of the U.S. consumers have credit scores below 690 right now. According to Citigroup, the securitization market supplied from 30% to 75% of the lending to various sectors of the U.S. economy, such as the auto sector. Multiply this globally and it is clear a couple hundred billion dollars of roads and bridges will not offset a couple of trillion dollars of annual lending in the real economy.
The solution to fixing the broken credit markets has two components. First, there is not enough capital in the bond market to support all of the disparate credit needs. The Federal Reserve can fix this by printing $10 trillion and purchasing most of the outstanding U.S. Treasury bonds. The cash received from the sale of U.S. Treasuries will be forced into other more economically productive sectors of the credit markets. Second, the U.S. government can guarantee jumbo-mortgage backed securities and auto-backed securities to free up bank capital to lend to other sectors of the economy. President Obama needs to understand the economic pain we are experiencing is unnecessary. He can effect real change if he will simply stop listening to his political advisors to wait and see whether or not the first failed stimulus plan is enough, and instead demand drastic action.
Posted by Michael A. Kamperman on July 2, 2009
The U.S. lost another 467,000 jobs in June. The unemployment rate rose to 9.5%. While the headlines were bad enough, the devil was in the details. According to the U.S. Department of Labor statisticians, the number of people in the labor force shrank by 155,000 even though the population grew by an estimated 203,000. People are giving up looking for work. The number of people working for federal, state, and local governments shrank by 52,000. Tax revenues for state and local governments are falling. The State of California alone is trying to close a $27 billion projected budget shortfall for the new fiscal year that started yesterday with some combination of program cuts (jobs). The average work week went down to 33 hours per employee. For the first time in a long time average hourly earnings were unchanged from the previous month. The clincher is the average weekly paycheck fell by $1.85 to $611.49. Finally, the number of people unemployed 27 weeks or more rose by 433,000 to 4.4 million. To put that stat into English, well over half of the people that lost their job last November have been unable to find a job.
With weekly wages now beginning to fall the ability of people to pay back their debts is diminishing. And these are the people that still have a job. The natural reaction to working in an environment where you are uncertain about keeping your job, and you know there are no raises, is to save more and spend less. The natural reaction to being unemployed for more than 6 months is to lower your sights and to look for a position that pays less and is in a less desirable working environment. Real wages fell during the great depression and it was one of the main reasons the economy was never able to fully recover. The U.S. is now on the cusp of declining wages. If hourly earnings actually begin to decline along with the number of hours worked, then shaking off deflation will become extremely difficult.
There is an available solution. The Federal Reserve could print enough money to buy up almost all of the outstanding U.S. Treasuries. Additionally, the federal government could establish a “bad bank” and take all of the toxic real estate related securities off the books of the banks and replace them with a long term loan of freshly printed cash. The banks would then have time to pay off their problem assets and they would have cash to lend into the real economy. The federal government could also guarantee newly issued state municipal debt and new mortgage-backed and auto-backed securities. The U.S. does not have to suffer and see its economy slide into the abyss. But we will continue to sink until our leadership in Washington quits staring like a deer in the headlights at the economic crisis and gets moving.
Posted by Michael A. Kamperman on June 24, 2009
Yesterday, President Obama acknowledged the unemployment rate is likely to exceed 10%. He was asked at his press conference if more action was necessary to boost the economy. He said the stimulus plan still had a ways to run and he wanted to wait and see if the actions taken so far are enough to restore the economy. The Congress is bogged down in energy reform, healthcare reform, and financial regulatory reform and has simply taken its eye off of the economic ball. That has left the Fed as the last line of defense to battle the economic depression. But the Fed has yielded to the bond vigilantes worried about renewed inflation from quantitative easing. The Fed has decided to take no further action at this time and will wait and see how the economy and the markets respond. What is significant about the Fed’s lack of action is their own reading of the economy is inflation is not a threat in the near future and they expect commodity prices to moderate and respond to supply and demand imbalances. Additionally, the Fed does not see an economic recovery taking hold yet. It only sees the rate of economic decline slowing. My biggest complaint is the Fed has gone on hold because it is confused by the trading actions of speculators, not because it anticipates a potential V-shaped recovery and a resurgence of inflation. Washington has now officially signaled this week that they are on the sidelines and are willing to wait and watch before taking further action. Since the President already anticipates a 10% unemployment rate, it is reasonable to assume that a significant impetus for further economic action will have to wait until the unemployment approaches 11%.
If one looks back at the severe U.S. recessions of 1973-1974, 1980-1982, or the milder recessions of 1991 or 2001, then one would see that a V-shaped economic recovery did occur. So my take is Washington doesn’t think it’ different this time. They have bought in to the rhetoric that the risk of a deflationary depression is now off the table. Why? The economic collapse can be traced directly to a crash in the non-government asset-backed securities market that relied upon the credit rating agencies. This market fueled the shadow banking system that was responsible for providing over 70% of the credit needs of the U.S. in recent times. This market remains broken and the commercial banks have not increased lending despite the TARP and the increase of reserves provided by the Federal Reserve.
Perhaps if they got out of Washington and talked to small business people rather than think tank economists they would actually hear what is happening on the ground in this economy. The consumer accounts for 70% of U.S. economic activity. The consumer is facing rising unemployment and still further tightening credit standards. Reports from realtors are that strict new guidelines for appraisals from Fannie Mae and Freddie Mac are killing multiple potential sales transactions. Unfortunately, Washington seems to believe that our economy should rely much more on manufacturing, exports, and consumer savings. The only problem is they have yet to answer the question increase exports to whom? Today, the Swiss government intervened in the currency markets to drive down the value of their currency against the dollar. The world doesn’t want to lose export market share to the U.S. The Fed should have upped its program of quantitative easing today. The President and the Congress should be focused on fixing the broken credit markets before they try to tackle long-term issues such as healthcare reform, energy reform, or financial regulatory reform. Because a lack of further needed action from Washington the possibility of a 1930’s deflationary depression is not only still on the table, it is the probable outcome.
