Why there won't be a recession

reply to post by Vojvoda


History shows that inflation expands as soon as the fed starts to raise rates. Inlflation wanes every time they cut rates. Most people say the fed is ahead of the curve, I say the fed always causes the curve and that without their interaction the markets would bring things under control by itself. That said, since we are already in that system, I think the fed needs to keep cutting rates to make up for the times that kept raising rates when they shouldn't have.

People underestimate the cost that higher interest rates have on prices.
The car industry is a perfect illustration, although monetary policy is not the only thing affecting them. When interest rates go up the cost of owning a vehicle goes up as well. Sales then go down. When rates are low, ownership costs are lower and sales go up. It works this way throughout the entire economy.

As for the fed, I cannot stand them. I think they single handedly cause every boom or bust in the economy. When it comes to the Fed I am on the fence between wanting everything to crash so we can get rid of them, or having them keep the status quo so it can be done as part of a long term plan and with less pain.

I would prefer to see a system with a fixed interest rate. i think 3 -3.5% (long term inflation rate) would be a good natural rate for banks to borrow at on a permanent basis. What they loan it at would depend on credit profiles and the loan characteristics, but the rate would always stay the same for all people in that category. Small changes in bank reserve requirements as the economy heats or cools would allow growth to be controlled much better than jerking rates around everywhere.

Economic theory is not correlated with economic reality. I think all the economists are just shills for the federal reserve. I always disagreed in school as well, but they just keep teaching the same old horsecrap.

Originally posted by Karlhungis

I think they are hiding something and know full well what they are doing. I don't think that Ben thinks for a second that lower rates are going to save the economy

Right KH. The Fed's dual mandate is to maintain a stable purchasing power (inflation), and to maximize employment (avoid recession). So, manipulating the target rate (money supply) is Bernanke's only defense against a slowing economy.

What the Fed knows...what's lurking beneath the surface of the mortgage crisis and the inter-bank credit freeze, is the potential cascade of kajillions in OTC credit derivatives. A financial disaster of biblical proportions if/when it occurs. Check the link below for more on this problem.

Fed Slashes Another Half Point From Discount Rate

*The site gets updated several times a day...you may have to scroll to locate this post.*

Edit: The Trillion Dollar Secret




[edit on 30-1-2008 by OBE1]

We definitely are in a recession, and I argue that we have been for some time. The formula for Real GDP is Nominal GDP - CPI Inflation = Real GDP.
Newsflash people - inflation is NOT 2-3% per year. The government has been tinkering with CPI since the 70s to make it give lower inflation numbers which *magically* gives us a higher Real GDP. It's fake, of course.

www.shadowstats.com is a site that highlights the changes that have been made in CPI calculation to deceive people.

I mean, let's be serious, the money supply since 1970 has gone from ~500 billion to an estimated 11 trillion presently. The reason why no one is sure about the money supply currently is because they STOPPED publishing M3 numbers in 2006. Their reason - "because it costs too much." Give me a break! These guys print money for a living and they say data collection costs too much! The real reason is because every time they look at how much money they've printed, they blush in embarassment.

Money supply has increased on an 8.5% annualized basis since 1970 and people think inflation has only averaged about 3-4%???

Also, on a side note, those of you looking at government unemployment numbers as dependable, you are also fooling yourselves.

So, of course, by *government numbers*, by *definition*, we are not in recession. Well, I guess the saying is - whatever helps you sleep better at night...

reply to post by Rothbardian



A whole bunch of money supply has been wiped out by the whole loan/derivatives fiascos. I think much more than all the capital infusions and stimilus package combined. As a result our money supply is actually shrinking. This means that we will start seeing the dollar appreciate and cost of imports wane.

For other posters, I still contend that fed rate hikes stoke inflation and rate cuts keep inflation under control. All empirical eveidence points in this direction. The fedsays they see inflation, they raise rates, and the rest just becomes a self fulfilling prophecy. It's a rigged game and this is where they have everyone thinking backwards. My signature says it all.

reply to post by CyberSEAL


It sometimes takes a few months for the numbers to come in so a recession can be "officially" declared. We are probably in a recession at the moment, but it will not become "official" until a few months pass and all the numbers are in.

Originally posted by Anatomic Bomb
We've been in a recession for a while now. Anyone who believes otherwise is blind or ignorant or both.

I for one knew a recession was coming or happening this fall when I went looking for a job at a summer job at a law firm. Most of the firms I applied for were hiring about 30% fewer summer associates for this summer than they did last summer.

I also live in California and was able to see the collapse of the real estate bubble. A couple years ago, the most modest houses in California were selling for over $500K. Over half the people buying these houses could not afford these houses with traditional mortgages, so they had to resort to subprime and other goofy mortgages. Anybody could plainly see that the red hot housing market which was fueling much of the nation's growth had to eventually collapse because only the well to do (those making $100k or more a year) could afford the *modest* houses.

Unfortunately there are many people who were shielded from these realities. Many of these people happen to be well to do. They have no idea that the average American family is highly fortunate these days if it is barely scraping buy. To them, the idea of a recession seems unfathomable because everybody they know had done well on the stock market or real estate market in recent years.

Little do they know that we live in a "trickle up" economy not a "trickle down" economy, where economy flows from the bottom to the top. If the common people cannot afford to buy things, corporations lose revenues, which in turn hurts the stock markets. If the common people cannot afford to pay their mortgages, real estate values go down and banks take losses.

Can someone answer a question for me please? I was watching the "news" on tv the other night and they showed the printing of money that goes on everyday.So, if we print "money" everyday....why are we in a deficit to begin with?Where is all this "money" going if this country is in a deficit? Looks to me like they could print out enough "money" to take care of the problem once and for all.

[edit on 1-2-2008 by totallyhuman]

reply to post by totallyhuman


The US could print up a bunch of money and use it to pay off its creditors, but in doing so it would drastically increase the amount of money in circulation. This in turn would lead to catastrophic inflation.

As an aside, in the early 1990's the Iranian government was toying with the idea of printing up a bunch of counterfeit US dollars to effectively tank the US economy. Somehow the issue got resolved. This story did not get a lot of news coverage because if people really paid attention to this story and understood the potential consequences of what the Iranians were threatening to do, the panic that would ensue would create chaos.

reply to post by hotpinkurinalmint


Thanks for your reply to my post.They need to take that money they print and pay off the foriegn debt they owe.Oh,that's right.....nobody wants American dollars anymore the want to turn everything over to 1 kind of money for every country.

Inflation can be thought of as a monetary phenomena related to basic supply/demand principles (e.g., too many dollars chasing too few goods & services). Think over-heated economy. Monetary inflation - begets price inflation - begets wage inflation.

When the central bank raises the Fed Target Rate, it defends that rate through the sale of treasury/agency debt...decreasing the amount of dollars in circulation. Conversely, to stimulate economic activity (now), the Fed defends it's easing policy by purchasing treasury/agency debt...increasing the amount of dollars in circulation.

Federal Reserve policy under Volker, aka The Inflation Slayer, is a classic primer on the relationship between interest rates/inflation.