I will provide this link to give some history to my Readers, but it is relatively unimportant in the face of Congressional reluctance to actually impose realistic regulation upon a economic sector who fills the role of Paymaster within the scope of political campaign contributions. Here is a more detailed survey without being too Wonkish, though it only approaches a specific area of intent. My major problem with central bank policy may be the destruction of Consumption Demand in the time of Recession. Low Interest rates seem like an obvious solution to an economic downturn, but it carries hazard as well. People who have little experience and generally possess lower annual Incomes put their extra funds in Banks on Interest. This is a pattern which will not change very much, no matter what invective sounds from the investment bankers. The Problem lies in the fact that such Investors curtail their Consumption patterns far more rigorously than do normal Investors; highly expectant that they cannot recoup any funds removed from their accounts. This means they enter a strained Consumption pattern exactly when Business will curtail operations if Consumer Demand does not reappear. I have no numbers, and do not intend to look for them, but estimate that the lost Interest for these Individuals equal about 20-30% of the potential Consumption Cash (remember this is not Credit) which is available in the economy. Business and Bank will not admit it, but what We need today is Cash Customers, who do not extend the Credit bubble We are in.
James Hamilton researched the subject of Oil price. The truly important point is that the percentage of Household Income which must be distributed to energy has been growing, and in a Period when Consumption in physical terms has been shrinking. The price of Oil is now about $80/barrel. A lot of economists believe it must rise above $100/barrel to have an impact on the economy–Wrong! Food Distribution stands as a very energy intensive industry–with both heavy Transport and Refrigeration Costs. Moms have been both filling the SUV, and checking out at the supermarket counter. They are beginning to notice that they are paying about 20% more at both places. Business and Economist both hope they will forget this fact in Christmas-Buying season, but the Moms are unlikely to do so. Understand that they make up a good Half of the Trade. I think that We are in far more trouble than Retail would wish.
We find Bank and Business totally devoted to their success again, though it almost guarantees that a good Christmas Buying season will be the most expensive in history over the repayment cycle, and almost a physical impossibility under the aura of rising Household Expenses. I do not understand How this Country’s economic leadership fails to grasp the need to open the flow of Cash to Consumers. Governments–Local, State, and federal–continue to raise tax rates and approve expensive programs which require further funding. My problem is that I cannot keep my Poker face on, when telling the less-Enlightened that Times are getting better. lgl