Reality--Where are you?

David Smith gives a good factual presentation of the events behind the Fed rate Cut. Everyone is happy–except me, and possibly William Poole. The source of my unease consists that the rate cut will not spur anything, but will erode any remaining stability within the financial markets. The financial Wizards of Wall Street imagine Investors are going to race back into the market. It won’t happen! The P/E ratios are waving the wrong flag, the Households are getting no Gain from the Rate cut in the near term–probably not in the long term, and Business will not invest in a shrinking Consumption market. It is stealing about 75 base points from about $1 trillion, where neither Banks or Depositors can easily absorb the loss. The Feds simply have informed Banks that they must receive less from their Overhead loans, when they are already scrambling for extra Cash.

Ken Jarboe provides Us with an Insight of the potentials of current stimulus thought, but I find the entire Stimulus argument to be somewhat foolhardy. It is Six months too late to generate the Effect which they desire, induces greater upward pressures on Prices, and leaves Businesses searching for Profits that will never appear. Business will be faced with a reduced Consumption Sales schedule, until Household debt has paid down 12-14% of their Debt load. No amount of Stimulus will likely alter this fact, the Stimulus packages simply repaying previous Consumption expenses. The Party lasted too long, and the booze was too expensive.

Readers should understand the effects of the Bush Tax Cuts. They created an artificially-induced pressure for Investment, when the potential for real Capital Investment did not exist because of saturation. The desire to invest the Cash split into two forms–an upgrade of Housing, and the creation of middleman Paper Investment options. It has led to an additional $2 trillion in Paper instruments, all of which hope for a 5% Return on the initial Investment; a capacity which does not exist, given the state of current real Capitalization. Five Overnight Millionaires per million people per year is a tribute to Hard Word and Genius; 200 Overnight Millionaires per million per year is an infestation of parasitism. Creation of Billionaires without the advance of massive industrial innovation means only economic distortion of the economic reward system. lgl