Tuesday, January 22, 2008

Bernanke's Unwise Intervention & A Better Path

Cutting the federal funds rate 0.75% did nothing to prevent the sell off today. The DJ industrial fell 128 points. The S&P500 also finished down, but not by that much - only 15 points. The worst is really yet to come later this year as more earnings information is released and confidence in recovery starts to dwindle.

It'd be different if employment figures were robust and the dollar was maintaining its value compared to other global currencies.

The Fed policy has cheapened the dollar even more, which for a country trillions of dollars in debt to foreign government, borrowing $10.00 but paying back only $5.00 is actually a good thing in the short-term. Just stop borrowing $10.00. Save more and borrow less.

No way. Not good enough for Americans.

We have to consume and consume or the economy just doesn't go. We need fast access to fund and we need credit as fuel to get where we want to be.

Bernanke's early morning rate cut certainly helps out those individuals with massive HELOCs, credit card debts and auto loan payments.

But is this really the kind of intervention the U.S. economy needs?

Wouldn't it be more prudent to save the dollar and prevent inflation from raging (which it now most certainly will)?

The rate cut is like giving the cocaine addict more cocaine with no strings attached, no consequences.

Strangely, this time around it might not be good enough. Even by rewarding the most financially destructive behaviors, it probably will not be enough to protect the U.S. dollar or build confidence in the US economy.

Remember that investors in the US economy are not all Americans. The entire world has vested interest in the U.S. economy and insist on it's health and financial good-standing in order to earn its funds.

But what do foreign investors see?

The US currency has been crashed into a tree. The trade defecit if represented as a stack of paper would almost reach Uranus. Employment is declining. The national debt has reached unsustainable levels and continues to be completeld ignored by American politicians and citizens alike. There is virtually no remaining manufacturing base that would demonstrate national production of goods, create jobs and contributed to GDP and community wealth. The U.S. remains at war with no end in sight and with unclear objectives, strategy and tactics.
There also awaits a massive future liability ahead in terms tax increases on individuals and businesses in order to fund social security and medicare and not completely bankrupt the government.

Why should I put my hard-earned money into a machine that is broken down or soon will be? Someone tell me why?

Keep spending, my fellow Americans. Enjoy those few extra percentage points of salvation on your monthly credit card balance that you never manage to clear.
Spend on your credit cards until you drop on the ground flailing about. But note this: What you are doing is destroying the country and and your ways cannot be sustained. There will be dire consequences.



1.) Save your money.

2.) Pay off your debts completely.

3.) Cut up all of your credit cards.

4.) Setup and emergency fund of up to $5,000 or more, if you can (rainy day money).

5.) Reduce your spending (stop eating out, stop the frivolous trips in the car, reduce water, heating & AC use, stop the shopping sprees at Target and TJ Maxx!)

6.) Maintain a balanced your monthly budget. Account for revenue coming in, expenses going out and don't forget to set money aside as savings. Pay yourself first.

7.) Splurge once a month on something nice (food, clothes, etc.). Just make sure you've accured for it (i.e. you've planned or set money aside for it).

8.) Hold off on any big purchases (cars, boats, motorcycles). And don't take out any new loans.

9.) If you're not using it, sell it.

10.) Update your resume and network with colleagues and contacts. The United States is entering a recession, make no mistake. Conventional wisdom says that when you're neighbor loses his/her job, it's a recession. But when you lose your job, it's a depression. Don't get depressed. Don't be the last one to know that you've been fiyaahd! Be prepared.

11.) Enjoy and celebrate life. Spend time with your family, spouse and children. Teach them to appreciate what you have right now. It's ok to get by on less.

12.) Write a letter to George W. Bush, Barbara Boxer and Dianne Feinstein and tell them "no thanks." The tax cut stimulus package of providing $800.00 does nothing to address the root problem of a balanced budget: a stronger US currency, a stronger production base in the US to create jobs and GDP, the horrific US trade defecit. Such a stimulus measure also makes the national debt even worse and does not instil confidence in those who might invest in our country or its assets.

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