Wednesday, September 19, 2007

Bernanke Going for Broke

The Cosmopolitan Charlestonian mentioned in the last post a rise in the price of oil. It actually touched $84 per barrel in the past week! How convenient that we just started riding the bus. And, true to our word, we began using the car money for a few small investments.

An exciting week for sure, on his book tour to promote, The Age of Turbulence, we got Greenspan's admission that the Iraq War is "largely about oil." Although his motives are up for great debate, we hope anyone still believing this war is over safety, freedom and security for Iraquis will finally put that argument to rest.

Oh, the irony of the interest rate cuts. In the past, we've LOVED it when the Fed cut rates. This time not so much. As one economist put it, a rate cut at this moment is economic suicide. The Cosmopolitan Charlestonian fears eventual inflation reminiscent of the 1970s while peak oil finally rears its ugly head as global demand outpaces supply - a dangerous combination. Speculators saddled up prior to Bernanke's announcment on the expectation of a 2007-2008 winter oil shortage leading to the commodities bull running wild. We were not among their ranks, to our own twisted chagrin. We're trying hard not to invest in oil, although it's so damn tempting. We also avoided the dollar under the pressures of this madness. Later in the week, the Saudis refused to adjust their own interest rate as the dollar plumetted. Sadly, Bernanke's plan is a foregone conclusion in the absence of a coordinated effort by countries closely tied to the greenback, i.e. Saudi Arabia. But have faith! Solid foreign policies enacted by the Bush Administration will allow us to communicate and coordinate with outside governments helping to soften the landing of this debt crisis. Oh, yeah - what foreign policy, you ask. OK, we're just kidding.

The best we can guess, worried about Christmas sales, Bernanke handed out free passes so the big guys can cover their balance sheets simply to keep the illusionary compounded debt markets from collapse for just a little longer while duplicitously aiding the indirect support of the military industrial complex. This could very well be the last trumpet cry for irrationally exuberant American spending. This financial boost will get Bush through the next 12-18 months with only some pandering at the end before he hands the gigantic problem he created to whomever inherits office next. By the time the economy sinks into a near depression, a new President will have taken the helm as Bush and his cronies escape accountability. Look, Greenspan also admitted the Fed's autonomy is basically a joke, so it is very safe to imagine at this point that Bernanke has been no less influenced.

Bernanke and Bush consistenly told us the sub-prime meltdown would not spread into the greater economy, they now tell us these rate reductions will help financially distressed Americans. Another great untruth. First, it takes time for a rate cut to even filter through to the mortgage markets. Several months, in fact. Second, mortgage rates are not set by the prime rate or the discount rate, both cut by the Fed. Mortgage rates are tied to the bond markets with the percentages based upon Libor. Finally, the bailout system presented by Bush(thru Fannie Mae & Freddie Mac) includes terms that exclude anyone with one late payment or an equity disparity. Someone please tell us how this is going to help people that are aleady in default with a depreciating home value! To be fair, it may help some, but only a relative few whose adjustable rate mortgages may not yet have adjusted. Additionally, if people are already having trouble making their payments, and it is obvious at this point that they are, how will they cope with inflated prices on everything from gas to toothpaste to milk?

This week we experienced a 25 year record on gold, 25 year record on oil, and increased global wheat prices, apparently due to global warming. Let's hope Bernanke has another parachute stuffed up his ass for the next crunch or bubble as this round of cuts were not cool and collected 25 point incremental lowerings, but panic-driven chum castings for shark.

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