Time For The Recession To Resume
I noted in an earlier post that I sensed a pattern of economic manipulation by Republicans since the election of Ronald Reagan in 1980. To summarize briefly, the GOP seeks to eliminate the negative economic effects of their policies as quickly as possible once an election is completed so that 'recovery' will occur just in time for the next election. They must really be in a hurry this time. I don't ever remember such a blatant change so soon after an election.
"I think they are going to keep raising rates for an extended period of time," said David Wyss, chief economist at Standard & Poor's in New York. "I think Chairman Greenspan would really like to get back to neutral before he leaves."
The Federal Reserve nudged interest rates up for a fourth time this year today, acting on the belief that the economy has finally emerged from an extended "soft patch." The November rate increase is likely to be followed by another quarter-point move at the Fed's final meeting of the year on Dec. 14, with more rate hikes to come in 2005, analysts say. That represents a change in thinking from a week ago, when many were predicting that the Fed would raise rates this month but then pause to assess the effect on the economy. The Fed started raising interest rates in June with the federal funds rate, the interest that banks charge on overnight loans, at a 46-year low of 1 percent. Three quarter-point rate hikes in June, August and September have pushed the funds rate to 1.75 percent.
Banks' prime lending rate, the benchmark for millions of consumer and business loans, has risen from 4 percent in June, the lowest since 1958, to 4.75 percent currently. A move on Wednesday would put the prime rate at 5 percent, still well below the 9.5 percent level for the prime rate in early 2001, shortly before the Fed began an aggressive easing campaign to deal with the bursting stock market bubble and the 2001 recession.
The federal funds rate stood at 6.5 percent before the Fed's first rate cut in January 2001, but analysts doubt the Fed is aiming for rates that high in its current credit-tightening campaign. Rather, the central bank is trying simply to get back to a neutral level for the funds rate, a level where the Fed's policies are not acting to stimulate economic growth or to restrain growth.
While the Fed has not said where the neutral level is for the funds rate, many economists believe it is around 4 percent. It would take nine more quarter-point moves to get from 1.75 percent to 4 percent. After the final two meetings this year, that would mean into seven more quarter-point moves next year. The Fed panel that sets interest rates meets eight times a year. Many analysts believe that timetable, virtually to the end of 2005, is exactly what Federal Reserve Chairman Alan Greenspan has in mind, given that his long tenure at the Fed ends in early 2006.
So this leaves workers in America right where they have been all along - facing serious economic difficulties for being the safety valve that protects the Toppers from the folly of their spendthrift ways.
With the dollar falling in value versus the Euro and hitting new lows almost daily, with crude oil prices expected to continue to rise, with jobs continuing to exit the nation for cheaper workers, American workers have little to look forward to. For example, United Airlines has eliminated pensions for their workers because it's now 'too expensive'. Expect other employers to make that same claim. Social Security is high on Bu$h'$ hit list, so that isn't going to be there for most workers of a certain age when they really need it. It may yet prove to be a good thing that Wal-Mart is around to enslave desperate seniors - it will keep them and their shopping carts full of cast-offs out of their parking lots and scaring away paying customers.
I already see a few people in such condition roaming around the streets, picking through the trash in the middle of the night to find recyclables to cash in. It keeps them relatively warm (even in SoCal, winter can kill by exposure), and they can then have the much-warmer day to sleep in the parks while the kids are in school. Then, as the sun sets, it's back to scavenging.
But even those who are somewhat better off are experiencing some downturns in their existance. I can't say how things are elsewhere, but there are Wal-Marts around my home which have become de facto RV parks. Wal-Marts stock many items RVs need, and the RV owners aren't charged - yet - for using their lots to park. Many lots currently aren't all that full, so allowing RVs to park there makes it appear that Wal-Mart is doing more business than it really is. But with the holidays coming, will that still be the case? I think not.
I can see where over-ambitious expectations of high holiday sales might cause Wal-Marts to force these modern-day Joads off their property. One has to have parking spaces for all of those Toppers who can't wait to purchase all of their Made-in-China gift bargains to distribute to their relatives! But where will the RVs have to go? Into the surrounding neighborhoods. RVs are expensive to run, and with the cost of fuel up so high, I can't see these people straying too far from Wal-Mart. This is only going to cause problems with the neighborhood residents, and things will only go downhill from there.
But I doubt that this is going to be a good sales season. I'm already seeing discounts going on, and that sort of things generally doesn't start until after Thanksgiving. The omens aren't good, and world events aren't helping any. I keep thinking about Paul Simon's Christmas 1968, and with the change of a few names and places, I think that it could be played today - and be very relevant.
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