GOP Concerns the Fed over the Economy

The Republican Party has made clear it will head off any jobs stimulus plan animated by its my-way-or-off-the-cliff fiscal policy, and its brand of political fundamentalism on coming budget talks. This stance has the Federal Reserve concerned.

The New York Times reports, "Fed officials also have indicated a desire to insure against a pair of looming risks, that events in Europe will freeze global financial markets and that the political stalemate in Washington over fiscal policy will undermine the domestic recovery."

Understated as usual, the Federal Open Market Committee made clear that it stands ready to act to promote stability and job growth, even as the GOP carps.

"Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. ... To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy," reads the Fed's statement.

Translated, this can interpreted as meaning the Fed, with the likely coordination of the Treasury Dept, will not let the Republican Party terrorize the U.S. and world economy. “We are prepared to do what is necessary,” Fed’s chairman, Ben S. Bernanke said, repeating a promise that has become his byword. “We are prepared to provide support for the economy.”

From the Federal Open Market Committee

Information received since the Federal Open Market Committee met in April suggests that the economy has been expanding moderately this year. However, growth in employment has slowed in recent months, and the unemployment rate remains elevated. Business fixed investment has continued to advance. Household spending appears to be rising at a somewhat slower pace than earlier in the year. Despite some signs of improvement, the housing sector remains depressed. Inflation has declined, mainly reflecting lower prices of crude oil and gasoline, and longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects economic growth to remain moderate over coming quarters and then to pick up very gradually. Consequently, the Committee anticipates that the unemployment rate will decline only slowly toward levels that it judges to be consistent with its dual mandate. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee anticipates that inflation over the medium term will run at or below the rate that it judges most consistent with its dual mandate.

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.

The Committee also decided to continue through the end of the year its program to extend the average maturity of its holdings of securities. Specifically, the Committee intends to purchase Treasury securities with remaining maturities of 6 years to 30 years at the current pace and to sell or redeem an equal amount of Treasury securities with remaining maturities of approximately 3 years or less. This continuation of the maturity extension program should put downward pressure on longer-term interest rates and help to make broader financial conditions more accommodative. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. The Committee is prepared to take further action as appropriate to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Jerome H. Powell; Sarah Bloom Raskin; Jeremy C. Stein; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who opposed continuation of the maturity extension program.

Statement Regarding Continuation of the Maturity Extension Program

Paul Craig Roberts Warns Things Could Fall Apart

In his When Things Fall Apart (CounterPunch) former Assistant Secretary of the Treasury in the Reagan administration, Paul Craig Roberts warns "If the US government is forced to print money to cover the high costs of its wars and bailouts, things could fall apart very quickly."

Just an idea, but how about we halt these two bullshit wars in Iraq and Afghanistan like right now.

Operation Iraqi Freedom and Operation Enduring Freedom can no longer be sustained by the U.S. Treasury and can no longer be endured by the populations that were supposed to be freed.

Not one more dead!

Hyper Power Corrupts

In December 2000, the Clinton administration announced projections that “the United States is on course to eliminate its public debt within the next decade.”

Then George W. Bush took over.

Discussion ensued over the next two years about the consequences of paying off the public debt in toto. It was stirring to hear the Federal Reserve Chair talk about the ramifications of this scenario before Senate committees.

Attending a critical meeting in the Bush administration in November 2002, Treasury Secretary Paul O’Neill warned of impending fiscal crises as he objected to a new round of regressive tax cuts that O’Neill saw as locking in fiscal debt were Bush to tack in the same fiscal direction. O’Neill was fired one month later.

Vice President Dick Cheney cut O’Neill off in the meeting, saying "Reagan proved deficits don't matter. We won the midterms (congressional elections). This is our due" (Ron Suskind, The Price of Loyalty; Simon and Schuster, 2004).

But Reagan had proved no such thing.

As Reagan presided over the catastrophic October 1987 stock market crash, Walter Isaacson noted:

What crashed was more than just the market. It was the Reagan Illusion: the Idea that there could be a defense buildup and tax cuts without a price, that the country could live beyond its means indefinitely. ... As he shouted Hooverisms over the roar of his helicopter ... or doddered precariously through his press conference, Reagan appeared embarrassingly irrelevant to a reality that he could scarcely comprehend. Stripped of his ability to create economic illusions ... he elicited the unnerving suspicion that he was the emperor with no clothes. [Time Magazine, November 2, 1987
pp. 20-21. Quoted in Haynes Johnson, Sleepwalking Though History, pp. 385-386; W.W. Norton, 1991] (It's worth noting that assertions that Reagan was a deregulator of markets is a myth, though he did share with George W. Bush a profound ignorance of policy, and though Reagan had neocon aspirations, they were knocked down after Iran-Contra blew. His true heir is George W. Bush who took the first term of Reagan's and streched it to its absurd and destructive conclusion.)

Now, eight years after the Clinton announcement projecting the end of public debt, we have a $10 trillion national debt and $500 billion projected annual fiscal deficit.

Many wonder whether foreign investors might decide to find greener pastures than twenty-first century America, resulting in dire consequences to the American way of life should this occur.

As “old Europe” and Latin America and indeed most of the world engage in schadenfreude, many mainstream intellectuals in America now openly wonder if America is "A Power That May Not Stay So Super."

Greed-and-crony finance, deregulation, corruption, and eight years of nihilistic politics may spell the beginning of the end of America as a hyper power and the launching of something new, something better.

As American citizens something new is our due.

We should have listened to warnings issued before. We can listen now.

From September 26, 2005 in CounterPunch, an excerpt from a piece by Paul Craig Roberts:

George W. Bush will go down in history as the president who fiddled while America lost its superpower status. Bush used deceit and hysteria to lead America into a war that is bleeding the US economically, militarily, and diplomatically. ... Once China completes its acquisition of US capabilities, it will no longer have a reason to support the dollar. ... When the dollar goes, it will affect costs, profits, interest rates and living standards in dramatic ways. Costs and interest rates will soar, and profits, living standards, equity values, bond prices and real estate will plummet. ...
These unpleasant events await only Asia's decision to curtail its support for US red ink. That will happen when this support no longer serves Asia's interest. ...
Time is running out for Republicans and Democrats to escape from the distraction of a pointless war and to focus on the real threats that endanger the United States of America.

Wall Street Looks with Concern, Fed Action Called "Emergency'

- Breaking Financial News - New York Times -

Update: Fed Cuts Key Interest Rate 3/4% - The Fed's cut in the federal funds rate is the "most dramatic signal it can send that it is concerned about a potential recession in the United States. It marked the biggest one-day move by the central bank in recent memory," reads the Times in a breaking story.

The Chicago Tribune reports:

The Fed decision was taken during an emergency telephone conference with Fed officials on Monday night. Those discussions occurred after global financial markets had plunged Monday as investors grew more concerned about the possibility that the United States, the world's largest economy, could be headed into a recession.

A disastrous, imperial foreign policy, a historically bad fiscal policy, a devastating blow to civil rights, and now a looming recession and downturn in the stock market.

Makes me wonder what god was thinking when, as Bush has attested, god chose Bush to be president.

From AmericaBlog:

Asian and Australian markets fell hard for the second straight day including a 5.6% drop in Tokyo, 7% in Australia, China 7.2% and Hong Kong a brutal 8.7%. The Hong Kong market has lost over 21% in 2008.

European markets collapsed on Monday, though at midday, are slightly down.

Wall Street is pointing in the direction of a painful day with futures down 4%.

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