There is a lot of chatter about the speed that the economy is coming back. Economists are saying that job growth will take a little longer, perhaps another year. With so many people out of work in the country and the financial system still in a state of shock, it is not surprising that job growth will take a while.
Two things concern me as I think about our domestic economy. The first is the availability of credit for consumers and businesses. Credit in the 21st century is money. Without lines of credit the recovery will be much slower. But, once the economy is up and running once again, the second problem is inflation. Gold is not selling at $,1000 an ounce for nothing. People are hedging their bets that when the domestic economy is up and running again that the fiat money, that we all use, will be worth less. In other words, our dollars will buy us fewer goods and services than they do now. Right now the problem may be deflation, but that can turn sharply when there are too many dollars in the system chasing too few goods. (Although with China making almost everything we consume, I wonder if that will ever be a problem.)
Do not look to the banks for help. Their wild ride is over for a while and they will be reluctant to visit the edge of the cliff again, or, at least so soon. Banking and the investment banking business needs to be separated, but I do not expect that Congress will try and get into that. As the Fed chairman has his hands full, he will not be suggesting to go back to the Glass-Steagall Act of 1933 that served this country so well for so many years. The Gramm-Leach-Bliley Act of 1999 repealed the Glass-Steagall Act, and put this country in hot water financially in less than 10 years. Former Senator Phil Gramm is another idiot with a PhD in economics.
The credit rating agencies, for me, is still the fly in the cake batter. The triple-A rating should be lifted from their rating sheets and the responsibility for the triple-A credit rating's final approval should sit with the Federal Reserve Bank. As long as the credit rating agencies have the power to give a structured finance debt obligation a triple-A rating, that rating will be suspect and the movement of capital will not be helped.
But, with our Congress not knowing its ass from a hole in the ground when it comes to finance, banking and investment securities, do not look for any quick solutions to these problems.
Stay tuned.
Posts
3 comments:
Congress reminds me of some upper level management meetings I used to attend. Sit around for an hour and not accomplish much and then someone suggests an idea and everyone says ok....trouble is...that idea will take hours, days, and weeks to implement for staff members, take them away from their other duties, staff have given no input into this monumental decision......................and then 1 year later, upper management will wonder why things are not working out.
I just read Winslow's comment. There IS something to be said for the 'Committee of One' approach to things. There's also a whole bunch to be said against it. But give me a Committee of One that DOES something before a committee that meets and can decide nothing.
With cheap imports and new technology, lots of products are likely to remain amazingly cheap relative to the overall economy. I fear that inflation could come back with a vengeance in house values and housing costs, but that would likely lead to another foreclosure crisis.
If the economy picks up steam and leads to increased demand for fossil fuels, expect energy costs to rise.
About a week ago, I was happy to hear the whole segment of Diane Rehm's hour on NPR radio about the credit rating agencies. Looks like some members of Congress are beginning to have hearings and look into the problem. Hope that can lead to something. It was a very interesting interview with several guests from slightly different perspectives. The problem seems to be beginning to get some attention at least.
Post a Comment