Will Bernanke Stop the Sky from Falling?

Fact:  China needs our discretionary income and consumer sentiment to stay high so they can maintain export levels and sustain the bullish run they’ve had in GDP.
 
Fact:  If we go down, we are chained to so many other economies that we will bring the world kicking and screaming with us.
 
Opinion:  The Federal Reserve has shown a pronounced recency effect, where they basically only remember what happened RIGHT BEFORE they make any major decisions.
 
I know Fed Chairman Bernanke wants to be viewed as a stalwart rock, unshaken by the day-to-day tribulations of us commoners and adhering to monetary policy that works wonders in the hypothetical realm of theory.  He even went so far as to say the last rate cut decision was a “close call”, implying that the chance for future cuts is slim to none. 
 
Chicken LittleHowever, it seems he and the rest of the Fed governors keep getting dragged back down to Earth by the rising din of the consuming populace.  The contagion effect of this credit crunch is really starting to take form, as one collateralized debt obligation (an investment tool used by the majority of large funds out there which are typically heavily invested in mortgage backed securities) topples right into another.  “Write-downs”, something we haven’t heard about on a large scale in a loooooong time, is becoming a household word as major financial institutions downgrade and devalue their own holdings.
 
Additionally, at the first opportunity the Fed has after deciding to be more transparent they have nothing but dismal news.  Growth is anticipated to slow and default rates on mortgages are expected to rise in ’08.  Gasoline costs chip away at our spending power as crude oil marches relentlessly towards $100/barrel (which could equate to $4.00/gallon of gas for you and me).  Major investors are leaning away from the retail sector (which is usually supposed to EXPLODE in December) due to waning consumer confidence, tighter credit standards, and a decrease in household wealth.  Recession or no recession, we are slowing down dramatically.  Freddie Mac, a governmental institution entrenched in the mortgage market, has experienced a 50% stock value drop since October 1st of this year.  If the Fed does not proactively attack all of these problems, they are going to tick America off in a big way. 
 
Call me crazy (I assure you, you wouldn’t be the first), but I am of the belief that the Fed will answer the call of the world and facilitate more attractive lending.  This means lower interest rates (a trend we have been seeing for some time now), more business spending, and a stable unemployment rate.
 
On a lighter note, this week heralded the winning names of the turkeys at our country’s annual pardoning of the turkeys by the president.  Their names: May and Flower (which are just trite enough to work).  President Bush commented that the winning names were better than the ones our vice president suggested which were ‘Lunch’ and ‘Dinner’.  Oh, that zany administration.  At least they still have some entertainment value left in them.  Is it 2008 yet?

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