Inflation-Fighting??

A combination of factors are pushing the Fed to the edge of a Cliff. Member banks and the Bush Government demand cheaper Cash and more liquidity, in the face of mounting inflationary pressures. The Reserve board has already bowed twice to the pressures exerted, and faces increasing pressure to reduce the fed funds rates further. Here is the Problem: other Countries are finally shifting higher Energy Costs forward onto the Import prices which We pay, funds which American Importers account as total loss of Profitability, unless the higher prices are passed to the American Consumer. The American economy is currently tied to Imports, a situation which I have criticized for decades. The inflation arriving on American shores is intrinsic, and nothing the Fed does can alter it. American business, on the other hand, demand that the Fed provide the liquidity to pay for it; a generation of a source of domestic inflation. The combination of the two forces will create stagflation.

Nothing will stop the progress of any Recession which might come, remember We have yet to see visible evidence of it as yet, as inflation has hidden the drop in actual Product. Recessions are built upon forces operating on the Production cycle, and liquidity will not affect the Scenario until there is need for Recapitalization; a condition which does not exist with the updated technology currently in force. A Monetarist policy will not be able to help, but it can hinder dramatically the stability of the economy. American business now demands an easy payment of Short-term bills, but this is exactly the wrong proscription. My Solution would not be draconian, though it would be claimed as such; I would advise the Fed to cancel all attempts to provide liquidity, and raise the fed funds rates to 4.2% at the March meeting. This would force American business and banking to register a Profit loss immediately, but would mean little else to economy except continued decline in Housing and the Mortgage market. The foreclosures will occur anyway, because of the pressure of Consumer prices, and loss of Business Profits will erase a great share of the Paper Profits which have embedded within the last decade, these Paper Profits existing only as a drain upon the real Profits generated by Production.

My proposed policy relies upon the magnitude of the American economy, which will concentrate upon the supply of Necessities to the American households. It would be assisted by alteration of American Tax structure to penalize American business and industry for reducing Employment; I would like to see a Tax charge on saved payment of Wages for the rest of the Tax year as Income, for all reduced Employment. There are some other methods to maintain Employment as well, like double payment of Unemployment Benefits taxation if a Business lays off more than 10% of its Labor force yearly. Employment numbers can be held relatively constant will relatively little duress to the economy or businesses themselves; a combination of the Above Tax measures could not possibly exceed $30 billion per year. It will notify American business management that there has been a definite change in Government policy, and one which will punish deviant business practice which is of injury to the overall American economy. lgl