How To Fight Deflation

[Crewleader]

September 11-13, 2009

Give a Worker a Raise

How to Fight Deflation

By MIKE WHITNEY

The slight rebound in housing looks a lot different when one considers how much the Fed is meddling in the market. Fed chair Ben Bernanke has purchased $240 billion in US Treasuries to keep long-term interest rates artificially low while--at the same time--buying $740 billion in Fannie Mae and Freddie Mac mortgage-backed securities (MBS) to provide the financing for new home buyers. It's the double-whammy; and that's not all. Bernanke plans to continue buying agency MBS (monetization) until he reaches $1.45 trillion, which will make Uncle Sam the biggest player in the housing market by far. How's that for central planning?

The fact is, all the recent gains in home sales are all the result of direct government intervention. If interest rates were allowed to rise (as the would naturally) or if Congress withdrew its $8,000 first-time home-buyer subsidy, or if FHA tightened its loosey-goosey financing (which requires just 3.5% down payment and low FICO scores, the same as subprime!) home prices and sales would continue to drop at a 10 to 15 percent year-over-year rate. Housing has stopped plummeting for one reason alone; the Fed bought the market.

The same rule applies to the stock market, where the Fed's quantitative easing (QE) and liquidity injections have sparked a 6-month bear market rally sending equities to the moon. It's all Fed intervention. A recent report by Egan-Jones Ratings And Analytics traces the Fed's lavish liquidity handouts pointing out the precise sectors of the market that have been most effected:

http://www.counterpunch.org/whitney09112009.html

[girl gone mad]

1. I don't believe that Bernanke will be successful.

We are already seeing the beginnings of a debtors' revolt. The American consumer is retrenching. Baby Boomers are set to drastically cut spending. Subsequent generations do not want to follow Boomers down the path of over-indebtedness, having just witnessed the ultimate outcome. The middle class is on its death bed after decades of looting by the upper class. Deflation is probably the one thing that could save us now, but it would have to be rapid. Bernanke is too beholden to the entrenched elites to allow that to happen so we will instead suffer through years of stagnation or worse, which will continue to be a drain on the American psyche.

[Crewleader]

2. I agree with you girl one mad

Bernanke is too beholden to the entrenched elites....and the middle class is on death's bed after the looting by the upper class.