BIOGRAPHY OF RECESSION (1-10-09)

Political blunder or perfect storm?


I have been silent for a longer period than usual. This silence has more to do with my disbelief of where we are than any prolonged lack of opinion. I have wrote several drafts and have found none really express the fear I have of what Obama and the 111th congress is about to undertake. I will address this and other issues soon. First, how the hell did we get here? Did bush "drive this bus into a ditch" with his "failed economic policies" like democrats claim?.... I'll have to say no. I cant even begin to understand those remarks. The president does not have the power to control our economy. The president can only control the economic business climate through taxation and monetary policy. He has brought us tax cuts with the aim of growing our economy. Federal reserve actions have been pro growth also. "Even though we paid for that by having todays dollar worth only 72 cents of the year 2000 dollar." Bottom line. The huge housing bubble burst and the oil price surge that proceeded it were the perfect economic storm that exposed the ugly underpinnings of the world in which we live. The thriving world economy required the largest month over month, year over year, increase in oil use we've ever seen. This forced the oil market pricing higher due to the very small monthly inventory reserves reported worldwide. You could say the management of world oil production could not or chose not to keep pace. I argue last of those choices. But all who could be producing more oil (U.S.A.) can't be blaming those who do (SAUDI ARABIA) for not producing enough. The more than doubling of the price of oil carried over to the price of doing business, buying gasoline, along -w- heat and power generation. This created an atmosphere that cut into profits, forcing an increase to the cost of all goods and services at a time when the American consumer had less expendable income. Then, the federal reserve, In an attempt to counter the negative effects of high fuel costs, chose to lower the marginal interest rates repeatedly from Sept 07 to the present day (by 5.25% to 0%) in small, incremental, steps. This to increase the velocity of the dollar and spur economic activity. However this only served to lower the worth of the dollar because businesses were already cutting back and were not about to change course due to mild monetary adjustments. As they saw it, it was a world event that domestic monetary policy could not overcome. "You can't bring one horse to a stop in the middle of a stampede" Not only did the monetary adjustments not correct the coming downturn, it made it somewhat worse. Yes, with the value of our dollar decreased, it allowed our products to sell overseas and kept our exports growing. But, the weakening of the dollar made things more difficult for the American consumer that buys mostly foreign products. Plus everything domestic had already been increased due to the fuel delivery costs involved. Oh, yeah....this sent gas prices even higher. It also depleted the feds economic arsenal leaving it with no ability to make any further adjustments if deflation were to occur. They're pretty much out of the game. Then, the only thing powerful enough to lower fuel prices, finally did. World economies started to retract. This caused less fuel to be required by the world economies, and monthly inventory reserves grew. Fuel prices began to normalize and we were ready to start the whole process all over again. But then!!!! (dun, dun ,dun) The American housing market bubble burst. It was the perfect one two punch. Know one could have predicted it. And even if they had, short of going back a decade or two, nothing could have been done. Don't get me wrong, most people knew of the bubble, same as the tech bubble in the 90's. But to not ride that bubble and take huge advantage of it. "Come on, everyone else is doing it" Most believed it would eventually shrink, hopefully slowly absorbed by our strong economic growth. That did not happen. Hope is just dope spelled incorrectly.
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(FOR MORE ON THE HOUSING MARKET/FINANCIAL MARKET COLLAPSE. SEE MY OCT 08' ENTRY)
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