The FED is a victim of its own SPIN

In the ongoing saga of the disastrous US economic situation the FED dropped interest rates an additional % 0.50 today. This makes % 1.25 in the past 8 days. The Reaganomic Pimps applauded the FED’s action. The Dow Jones Industrial Index went up 200 pts only to close 40 points down by the end of the day. Some time ago I wrote that the FED could drop rates to a negative return rate and it would make no difference. I suggested they drop by % 1.00 just to get the monkeys to shut up so we could talk about the real problems. As I proposed the FED rate cuts have not made any difference. Even the Administration’s plan to pump $150 billion will do little more than create a short-term bump in the economy. The real problem is structural and band-aids just will not heal the patient.

The last 2 years have seen the Administration and the FED to say that the economy was strong. FED Chairman Alan Greenspan, when asked if housing was a bubble, he stated that data did not support this. He stopped short of using the popular phrase, “They are not making any more land!” It was obvious to all that the housing market was in an abnormal cycle but the FED’s data did not support it.

The current downtown, recession or depression, was also obvious to most thinking people. Still today the FED’s data does not support that opinion. The illness is the FED’s data. Since the inception of Reaganomics the FED has been tweaking the way data is counted and elaborated. Just as soon a real data would show that the economy was having problems the data was either discarded or superceded by some other type of calculation. Some economists believe that it would be impossible to have negative GDP under the current system. These changes were effected for the sole purpose of allowing the destructive forces of Free Trade to progress without raising alarm signals and creating a national debate.

The current situation, augmented by the BIOTECH-Internet-Housing-Financial bubble, is now disastrous. Still today with all the DOOM and GLOOM we are still underestimating the structural damage to the US economy and America’s pocketbook. I do not believe that the FED is clueless. I do believe that either they are not scholastically prepared to understand the data or the data no longer has any value. In the latter case the FED would be a victim of its own spin.

Just a final note: The pundants are predicting great growth in stock prices over the next six months. I believe we will see a historically significant down day in the next 10 days followed by a slow and painfull slide. The slide will end as WE start taking on the real problems. The dollar will continue its move toward 1.75 against the EURO and inflation will skyrocket.