The weekly prompt at Two For Tuesdays is Plain and/or Fits.
Good morning everyone, this is Dewy Knickers here with another edition of ‘The Voice Of Reason’. It’s time for some plain talk about the economy. Seeing as our leadership won’t face the facts and say the word recession, I will. Whether or not the current economic activity fits the definition of a recession is a moot point. The core inflation rate in the United States is increasing every month. The main factors are the rising cost of energy, specifically the cost of oil, the rising cost of food and the falling value of the dollar.
Every time the Federal Reserve lowers interest rates in an effort to loosen credit, the dollar gets fits. The dollar is worth less, because investments will seek higher returns elsewhere. It’s plain that this will not work to stimulate growth because of the expanding mortgage and equity crisis. Cheap credit by itself is always good for an economy, except when that credit can not be repaid. There is plenty of liquidity available but lenders are unwilling to make new loans to anyone across the board. By continuing to force interest rates lower, the Fed is causing inflation. Why? Because the United States has the largest trade deficit in the world – equal to the rest of the world’s deficit combined – and every time the interest rate goes down, the dollar falls in value to other currencies.
This fits with the model of high inflation since over 2/3rds of the American economy is based on consumption of goods and services. A weaker dollar equals more expensive imported goods. More expensive imported oil equals higher energy prices. Higher energy prices mean higher food prices and anything that is transported to market; which means everything. The more the cost of living goes up, the more employees need to be paid. Inflation is curbed by higher interest rates, less demand and higher unemployment. The less consumers spend, the less demand and the less upward pressure on prices. The less consumer spending, the more stores that will close and the more unemployed there will be. The only bright spot is exports, but only a small percentage of the workforce is employed by companies that export goods.
The plain truth is that American consumers have mortgaged their futures. We have bought so much foreign oil and so many foreign goods on credit, that we no longer have the ability to spend our way to prosperity. That credit is being bought up not by Americans or by the American governments, but by the very countries we purchase from. We send weak dollars overseas to buy toys, oil and automobiles and in return, China, Saudi Arabia, Japan and all the others send those dollars back to buy the Federal Government’s debt. In other words, the money the Federal Reserve prints to pay for the U.S military is not supported by incoming taxes but by consumer spending on imported goods. The global economy fits into a neat circle, a circle that may soon be shattered by an American recession.
This has been Dewy Knickers for HBNN, I am the ‘Voice Of Reason’.
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