I’m sick of the Ped

 Well the Fed cut their rate and delayed the inevitable correction of the economy. Actually, depending on what all you read they may not have even done anything that will even have an effect on the economy. Ka-Bar has a good write up on his site.

Cutting rates or not cutting rates doesn’t really make a difference. All the rate change does is potentially bail out some Wall Streeters and people who took on stupid mortgages, maybe. The real test will be to see if the money supply opens up. Even if rates are super low if you can’t find anyone to lend you money it doesn’t really do you much good now does it? I wonder when people will realize that the ups and downs of the Dow have no actual impact on the economy. Sure it impacts the wealth effect that people feel, but it doesn’t affect the meat and potatoes of the real world.

The real underlying problem with our economy is the dismal job creation situation. Sure the stats say there are plenty of jobs being created, but most of these jobs are not well paying jobs. They are lower tier jobs that deny the employee a chance at a middle class lifestyle. Hell, even “good” jobs are suffering from wage stagnation and offering yearly raises that, from what I can tell, are at best 30% of the true inflation rate.

Of course all of this is coming up in the face of Peak Oil and a situation where the cost structures of businesses will be thrown all out of whack. In job creation terms, Peak Oil MAY actually create jobs as manufacturing is brought back to America from all those other countries. However, there will be many less jobs in other areas so the net effect could still be negative.

I wonder if we should talk about the jobs/industries that will be in serious jeopardy once Peak Oil really sets in. I think we’ll do that in a later story. The list is quite extensive.

Another huge issue that is overhanging our country is the massive amounts of debt that we all carry. Does anyone know anybody under 30 who doesn’t have a loan from college? And then also a car loan and maybe a house loan? What about credit cards? The average college graduate has $7500 in credit card debt when they graduate. Granted a lot of this is from people not being able to say no, but it’s also a societal thing. The point is that 70% (or more) of the economy is predicated on consumer spending and you have to wonder when they will run out of steam. They never seem to, but it seems increasingly that the consumer is tapped out.

Either way, at least this action by the Fed shows what their real role in the world is. They bail out Wall Street. They are supposed to “manage” the economy, but it would seem to me that we’d be better off if we let things float without their intervention. They created this mortgage mess (to a certain extent) by dramatically lowering rates in the first place, and now they aren’t willing to clean it up. They’re like a 3 year old kid.

Gah! I’m out. I can’t talk about it anymore.

P.S. The title is an inside joke with my friend Tom about an economics professor we had in college who always referred to the Federal Reserve as The Ped because of his accent/speech pattern.

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2 responses to “I’m sick of the Ped

  1. I don’t know much about economics or monetary policy, but I think you’re being a little harsh. Whether or not people invest in the stock market, it is widely viewed as the (maybe second after gas prices) most important index of the nation’s economic health.

    And though I’m sick of Mr. Greenspan’s endless tour of talk shows, he makes the very reasonable point that the economy generally does better when people believe it is doing better. Good or bad policy, it’s not untrue.

    The other point I’d make is that the Fed doesn’t exactly have, strictly speaking, the ability to regulate lenders (they may have exacerbated the willingness of lenders to make risky loans, but they didn’t cause it), nor can they really tackle the problem we have with personal debt in this country. That’s something that should be dealt with, but I don’t believe it’s really within the purview of the Fed.

    Of course, I’ll admit that I could be wrong about this. As I said, I don’t really know much about either economics or monetary policy. It’s one thing I really wish I’d studied in school.

  2. David–You just backed up my point that the market is more about emotions than true monetary policy. If the stock market was declining but you were getting nice wage increases wouldn’t you feel that the economy was better off? And the opposite is also true. The health of the stock market is a result of wages in America, not the cause of wages.

    The value of a company is supposed to increase over time if it’s profits increase over time. How do profits increase when your consumers (us) have stagnating wage growth? They can’t. But, if we have wage growth even with the Dow declining our increased ability to spend will cause higher profits which will cause higher stock prices.

    If our wages are declining and the Dow is increasing it’s because the companies are cutting costs either by layoff or some other means. While that’s OK in the short term in the long term it leads to a a depressed stock market.

    My main contention is that the Fed tries to manage the economy and does a piss poor job of it. The conspiracy theorist in me says they exist to serve Wall Street because otherwise why wouldn’t they have been disbanded by now?

    Greenspan talks about the Fed’s role.

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