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Jim Cook



Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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The Best of Jim Cook Archive

Best of Richard Russell
May 6, 2009
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For years, ever since WW II, Americans have been voracious buyers and consumers (much of it on credit). The Fed, free from the discipline of gold, could create money at will and it's been doing exactly that. Politicians want an ever-increasing Gross Domestic Product, and they have always encouraged spending. With its endless hunger for the good life, the US became buyer to the world. For decades, US consumers bought what they wanted through credit cards and debt. Debt piled up and asset prices inflated.

The rest of the world used the US to unload their goods on. Capitalism went global. Asia grew relatively rich selling every type of merchandise to Americans from refrigerators to toys to cars. Then in the 2000s via the Greenspan Fed, US housing evolved into a giant bubble. The price of housing in the US grew grotesque. Finally, housing toppled over. Real estate was the biggest asset in the nation, and with a collapse in the price of housing, deflation set in, unemployment sky-rocketed, and every business sought to reduce overhead the quick and easy way -- by laying off every worker they could.

The "death-spiral" took over. Frightened workers, those with and those without jobs, cut back on their buying, retail stores went bankrupt. Within a few months, contraction, deflation and unemployment became the watchwords of the day and the week and the month.

In stepped the Bernanke Fed and the Geithner Treasury. Next, I want to insert a few words from my favorite columnist, Caroline Baum of Bloomberg.

"The odds that 19 men and women (a.k.a.the Federal Open market committee) will be able to select the overnight interest rate that keeps the US economy growing at its potential in perpetuity are next to nil."

"There would be a huge outcry if the Fed set the price of oil or copper or soybeans. Yet, we accept the central bank as a price setter, a monopolist, when it comes to the interbank lending rate."

Now the Fed along with the Treasury, are trying to head-off a potential deflationary crash in asset values. They are doing it the same way they always do -- pump up the money supply, and keep interest rates low, down to zero if possible. This is laying the groundwork for the next bubble. Where the next bubble may lie is unknown. The next bubble could be the inflation of all assets. Or the next bubble could be -- simply inflation. But the Fed has a sure cure for inflation. The cure is rising interest rates and higher taxes. All of this is giving way to populist cries that "capitalism no longer works."

Right now the big question is -- can the Fed and the Treasury halt asset deflation, and can they halt the bear? The answer is out there, but not obvious yet. So far, the money managers have rushed into the market because, above all, they can not afford to miss a potential big advance in the market. I don't think the big individual investors and the institutions have come into the market. They're still weighing the situation and the risks. As for the retail buyers (the public), I suspect many have come back to the market, mostly in a vain effort to recoup some of their fearful losses.

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