………………and the case against any Federal Reserve Rate Cut

October 30, 2007 on 1:22 am | In Old Posts |

By John Galt

October 29, 2007

This section could be written somewhat short and sweet. But the problem with short and sweet is that getting to the point is beyond any concept of reason or logic by anyone in the blogosphere, so why should I be any different? In this writer’s esteemed opinion the Fed must stop cutting rates here, even at the risk of destroying the equity markets in the short term to salvage the US Dollar. If there is no line in the sand, no demonstrated willingness to stop the decline and devastation of our currency, then the long term results will make the Carter Economic Miracle look worse than the short lived idea of “Drunken Ice Follies”. Sadly, the currency is viewed as a tool to promote and pay back debt and the debasement of our national symbol of trust and faith, that one symbol the world still held in high regard, is fast approaching the point of no return.

In numerous other editorials, I have ranted, raved, screamed, bitched, moaned, freaked out, smitten and sworn at the government and the central banksters for failing to resolve the national debt situation and valuation of our beloved greenback. Unfortunately my voice is but one in the wilderness of garble, usually drowned out by a million “booyahs” as those souls open their mutual fund statements to see the joyous two percent increase for the month, even though the destruction of the dollar often dilutes those increases five fold. Once the U.S. Dollar Index, so popularly quoted everywhere including Bubblevision I and II now, declines below the magic number of 72, there is no point of return or any idea as to what it will take to put it all back together again. The perception that we can grow our way out of any currency crisis is so naïve, so ill-informed and so disrespectful of the growing geopolitical and economic power of the remainder of the world that it is shameful. The world is beginning to realize that they have supported a drunken sailor for twenty years plus now and that we need to either sober up or just go away for a while. The world economy and political powers are trying to push for the latter so their own self interests are not destroyed and they are allowed to grow unhindered by our foolishness.

Thus why we can not cut rates and must learn to endure some major economic pain as the excesses are wrung out. It is sad that the powers that be are not willing to endure the political pain while the party is wound down and the consequences of such usually lead to a crash, not a nasty hangover. I hope that the Fed does the right thing and surprise everyone by not cutting and actually defending the dollar. The consequences of cutting rates could lead to a massive decoupling by other nations from their dollar peg and a sudden, uncontrollable inflationary spike which would last in excess of twenty four months. Such an inflationary spike would be so destructive to the retirees of this nation that there is no action the Fed could take to neither preserve their investments nor guarantee anyone’s ability to purchase basic staples without the implementation of price controls. That prospect should terrify everyone except those who have prepared for the worst case scenario.