Friday, October 03, 2008

The price of Oil has reduced, based on fundamentals which state that there is a lot of pumping Wells now, and People buying a lot less because of the downturn in the Economy. The Proclamation that this is a great help to American Consumers, though, reminds of Wiley Coyote being handed a coil of Rope falling off the cliff. The weight of the coil simply added to the impact force of landing, unless the end of the Rope was tied to something. The American Consumer faces a situation where their Spending pattern too often is loosely tied a shaky Job. One cannot develop a sustainable Consumption unless purchasing with Cash. The Problem finds in the reality that the Short-Term looks better than the Intermediate-Term, while the Long-Term will require a larger Capital Aggregation–doesn’t that sound like fancy Bull?–too bad it is true!

The Fed persists in claiming Influence in the Credit markets, after fronting the $600+ billions to those Markets. This Thought that anything would change by lowering the fed funds rate stands as another example that the Fed pursues an Economic policy which is obsolete. The first thing which needs to be said states that the Commercial banks have sufficient Cash reserves to lend. They won’t Lend because of the insecurity involved in that Lending at this Point, where they cannot adequately evaluate Business performance. Most Sales in normal Business models could easily vary by 30% under recessionary conditions, and Bankers hate to provide Cash to businesses whose Profits can vary by plus or minus 300%.

The States are beginning to undergo the effects of the economic downturn. I do not know of any State which does not support its Road construction from the Bond market, and many States utilize the Credit markets for ordinary operations like paying State Employee salaries. It is the humor that progressive States will be the most deeply impacted by the Credit Crunch, while the regressive States will likely only have to suspend Project constructions. I believe that this Recession will establish a Theory for the acceptable levels of Welfare, there being some prominent theory both defining the Cause of the Recession, and the Respondent necessary action to counteract the causation. It matters little that most of these theories later prove to be erroneous, and equally productive of adverse economic crises down the Road. lgl

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