The Piper Doeth Calleth

Its been a while since I spoke my mind on my blog and boy a lot has happened. Especially on the economic front. I have been watching the beginning of the fallout of the credit markets that it seems this country has built its economy on. And all I have to say is wow! Who would have ever thunk that a country like the USA would use credit to build its economy? So we find ourselves in the subprime dilemma where people
were offered unconventional loans to purchase homes and now interests rates are climbing and the monthly mortgages along with it. What I don’t understand is in all of this happening the fed is throwing more money to the calm the market and it is going to have a downward pressure on the dollar. Granted other central banks world wide are also providing billions in liquidity but in my opinion they can do that and withstand after all they are the ones that have heavily invested in our market and stand to lose their investments and cash reserves for their currency is probably not as widely held as our dollar is widely held. Here in the states the mortgage companies and others who had a hand in shelling out these loans should bite the bullet instead of looking for a handout from the fed. I have been watching the 2 financial channels cnbc and Bloomberg just watching and waiting to see if there will be any responsibility taken by these entities and have heard a few voices in the wilderness on the issue. And to tell you the truth I am quite surprise at the fact that these people don’t even mention the word consumer. It is if it is forbidden for them to say consumer. It is going to cost the top tier money people in this country if they do not start paying attention and taking care of the consumer. Besides as much as I do not think they want to admit it it is the consumer that drives everything. They may provide the driving materials but the consumer is the conduit that keeps the money coming into their pockets. As I listen to these financial channels we keep hearing that the market is strong and the fundamentals are strong. That may be true if the fundamentals are corporations. And if this is the case then the fundamentals are on shaky ground. There is a missing element of the conversation that I hear when I watch these channels and that is wages. Instead of talking about wages they prefer to measure unemployment vs. employment but it is the wages of those who are employed that they discount. Wages are the key. If wages are low then people will not be able to afford to buy things. And consumption being a part of the G.D.P. equation will slow if not come to a halt if wages do not rise. Added to the wage problem is the fact that you have taxes and medical insurance that are high being deducted out of these low wages. And discretionary income is barely enough to take care of the necessities. Now I understand why wages is a bad word because if wages rise then that means you will have to watch out for inflation. So what would be the solution? Lower prices might be a start. And then the crisis in the credit market is definitely not going to help. These lenders can no longer go to the sources they once had to fund the loans they were providing so now lending will be tightened and that is going to put a damper on consumption as well. As we know this country and everyone in it is dependent on credit and now that the well spring has dried you can expect consumption to follow suit. And mentioning the sources that once provided the funds so that these loans could be made, most of those sources were overseas investors. So now that they have discovered that is was credit that funded our prosperity and they now realize that the American consumer cannot afford to repay their mortgages there is flight from the US stock market. Triple digit market gains maybe a thing of the pass for Wall Street for a while. So it is time for America to get her financial house in order. The fed shelling out funds to bail out those who provided these loans will hurt the value of our currency in the long run because it is putting more dollars in circulation. It maybe providing a band aid now but it is going to take more that a band aid for this. And the ones who need to bear the brunt of this are the ones asking the fed to cut interest rates. No one likes pain but sometimes pain is what is necessary to get things fixed. The loan providers have enjoyed a time of prosperity but now it is time for them to pay the piper. One thing I can think of that would make it a lot less painful is this: lenders should go to those bad loans they issued and defer late payments so that mortgages that are delinquent can become current and they should realign any ARM and place a cap on how high they go that way people will know what to expect. Right now no one knows what to expect so there is uncertainty and chaos. But by offering homeowners the option to defer their payments or just automatically deferring payments there should not be a need for the fed to jump in and bail out the lenders. They would have the money they needed coming in so they could get the funding to back the loans they provide. And it would be the mortgage companies handling this crisis themselves without having to print any money which in turn would place downward pressure on the value of the dollar. If the fed does continue with bailing out this market then in the long run it will hurt more than it helps in the short run and pain deferred is worse than biting the bullet today. It would be in the best interest of the sovereignty of this country if the fed did not bail out the market. Because now that foreign investors have seen the light they may not want to invest here any longer and because our market is so vast now due to the global connection it will take more than the locals to keep it afloat. I hear a lot of analyst point to investing in the global economy which tells me there is a flight from investing in America which is not a good thing for this country. The mortgage companies and all that are involved have the power to fix this crisis themselves. But because of their greed and wanting everything the easy way they probably will just depend on the fed to provide liquidity. The consumer is non existent