Friday, November 2, 2007

Economics: The Silent Killer

Some of the most entertaining television these days has been coming from the business sector. Having ignored economics for so many years, I slowly began to realize how much it affects us in our daily lives. Make fun of me if you need to, but that's how it is for many people who come from a state of what some erudite writers have called "chill penury." There's little sense in studying what your belly tells you. So the thinking goes...

But now things are much better for us in this great country of ours, and I'm having to play catch-up ball with the rest of world. So I'm fascinated by the DJIA which went over the 14,000 mark a few months ago, dipped, bounced, dipped, and then was buoyed up by a half-percent cut in the federal rate, followed by another quarter point cut just two days ago. Yesterday, there was a fast and sudden drop which triggered a tradiing halt on Wall Street.

The Wall Street Journal broke it down pretty well and I'll paraphrase:

* The down pressure on Wall Street was caused by worries about the credit markets. With so many investment vehicles bundled from mortgages and other credit financing, the effect of irresponsible loans in the credit markets was widespread.

* Having seen the credit markets buoyed up by the half-percent cut, the Wall Street money-lenders expected further support from the Fed. One WSJ writer said that the expectation of another quarter point cut was so great that Fed Chairman Bernanke was locked into it. Otherwise, the thinking goes, the sky would fall. That writer commented to the effect that the Fed had to give in to Wall Street's "tantrum" in order to prevent larger and more violent tantrums later.

Overall, the big picture is fuzzy to me as it is to everyone else. The third quarter growth is up in the U.S, counter to the last quarter point cut. Global growth remains strong. Bernanke told the world that inflation and growth were in balance. Bulk oil prices are heading toward the one hundred dollar mark. Consumer spending has been reasonably strong. Many think that these factors will cause the economy to veer away from the big "R" that some bear market types see tatooed into the ghost of the economy. Others think that high oil prices and geopolitical instability (that's what they call it, honest!) will put a dent into consumer spending in the fourth quarter. A sharp decline in consumer spending followed by an well-timed terror threat (or actuality) could cause serious havoc and have a large impact on the impending presidential elections.

What I really think is that people should start paying more attention to economics. The poor as well as the middle class. The deeper the understanding one has of the forces influencing one's life, the less likely it will be for us to be enslaved by the machinations of demigods.

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