The economy is fundamentally strong. My ass.

[flamin lib]

Bull$hit. That’s the only word for it.

The fed just cut the interest rate again to ward off recession. How does that work? If interest rates are low people spend more money. That’s what happened when mortgage rates fell; people bought houses. People buying houses fueled a lending war with banks making all sorts of foolish loans. The Republicans had loosened banking regulation and didn’t enforce what few laws remained, so lenders didn’t worry about the loans foreclosing because houses in big demand meant house values increased. Let ‘em default, we’ll just sell to another buyer!

That snake had to stop eating its own tail when foreclosures caused the over-inflated housing values to crash so the lenders couldn’t sell for what they’d loaned and we all know how that worked out: first the lending industry crashed, then the housing industry crashed and all the peripheral industries, lumber, appliances and landscaping crashed.

The only thing keeping the economy afloat is consumer spending on cheap imported goods, notably from China so when Joe Sixpack slows his spending the FED takes notice.

The only problem is they’re creating a new snake eating its own tail.

Low interest has weakened the dollar against other world currencies. In 2005 one $ would buy 8.3 Chinese Yuan. Today it will only buy 7.4 Yuan, a 10% drop. That means the Chinese have to pay 10% more for material and labor into the US market. Prices at Walmart go up, Joe Sixpack cuts back, US economy looks weak so the FED cuts interest rates to make it easier for Joe to run up the credit card.

Rate cuts weaken the dollar more, which makes China look at its one trillion dollars (which are now worth only 900 million) and say, “Hmmmmm.” Last week a Chinese government official mused out loud that maybe China should sell off its US currency, a signal to the FED to keep rates high “or else”. That spooked the commodity market (gold, silver and such) and the dollar fell even faster.

So there you have it, a brand new snake. If the FED doesn’t continue to cut rates the economy goes into recession on Bush’s watch. If they do, the Chinese and others sell off the dollar and it crashes. That means a 99 cent package of tube socks at Walmart will suddenly cost $2.50. Inflation runs amok and there’s a recession on Bush’s watch.

If you want to know what this means to our economy visit Mexico and imagine being the Mexican you’re buying trinkets from. "Hey Mister! Genuine silver bracelet only $10 US, $5 Canadian."

http://www.thetrumpet.com/index.php?q=4406.2649.0.0

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