Ghosts of the New Age

The Federal Reserve has come up with a Plan, so says this article. One wonders at the intelligence of the proposed effort when one considers the loss of Investor confidence which will be entailed. The Government is planning to cheat the Stockholders with a generated nominal price for their Stock. Both companies are supposed to be placed in foreign hands, who are expected to loosen a loan extension policy which has already lost billions of dollars, and the company leadership is expected to raise the Money for said expansion from Private investors. It is all going to work out well–as We live in Never-Never Land. Predicted End-Result: No Money from Private sources, great expansion of Mortgage numbers (both quantity and level), great Cost to Government (read Taxpayers), and a huge increase in Mortgage default.

The very next Story in the NYTimes discusses the increase in Unemployment to over 6%. What is not said is the impact which Unemployment will have on the first article. No one will be making their Mortgage payments on Time, if they have lost their primary source of Income. Economists oftentimes overwork their models, basically by imagining a consistency in those models when the structural economics are under Stress. Consumption has an intrinsic alteration of pattern in the face of Income shortage, not simply a decline in that Consumption. People make the most Time-Sensitive Payments on the most essential Products and Services, with other Payments delayed no matter what it does to individual Credit ratings. It becomes a matter of Priorities.

The Europeans are leading in both the Recession and the decline in Consumption. The Volume is down, and not expected to increase, while the Euros spent for that Consumption has gone up. The decline in the Euro against the Dollar has reflected this higher Inflation. The Economist’s suggestion in the article that the decline would be relatively temporary may be more optimistic than realistic. The EU is facing an increasing Population with a higher per person Cost of Living, less Capitalization per person, and constrained by Transportation Capitalization and Costs. Then one has to ask how far Anyone in the World is off the European Standard–whether in the United States, China, India, or anywhere else. lgl