Well,not quite, but it is the Labor Day weekend in the US with no trading on any US market until Tuesday, September 4. In the context of the global interbank payments freeze and the terrible strife afflicting the market for commercial paper (read debt), this is ominous in the extreme. Labor Day marks the end of summer in the US. It also marks the day after which the whole ponderous mechanism of US government gets back into "top gear".
Thus it is not a coincidence that both Fed Chief Bernanke and President Bush himself chose the current weekend to make speeches "reassuring" Americans that the same ponderous government mechanism which got them into their present dire financial straits in the first place was planning to be ever vigilant to assure that nothing bad would happen to them. "I plan to help the homeowners", said Mr Bush. The Fed "will act as needed to limit the adverse effects on the broader economy that may arise from the disruptions in financial markets", said Mr Bernanke. What precisely Mr Bush plans to do to "help the homeowners" was not spelled out. Mr Bush did urge "patience", but he has been doing that in regard to almost every "policy" his Administration has implemented since he first took office in January 2001. Nor were the specifics about any actions the Fed plans to use. Wall Street, of course, assumes that the Fed will start lowering the "real" interest rate, the Fed Funds rate, on or before the date of the next FOMC meeting on September 18.
Now here's another quote, this time from somebody on the lending "coal face" in the US, on the magnitude of the problem. Mr Mark Ernst, the chief executive of "Option One", the mortgage arm of accountancy firm H&R Block, said this on August 31: "The loan originations market is in the midst of the most severe dislocation it has seen in years, maybe the most severe since the 1930s".
Mr Bush and Mr Bernanke - and everybody else in government and amongst the powers that be in the financial community - want to do what they have always done when any type of financial or economic "problem" rears its head. They want to throw more money at it, enough money to make it go away. The problem that they DON'T want to talk about in present circumstances is that they HAVE been throwing money at it and it has NOT gone away, it has gotten worse.
If the situation had not become worse, then President Bush would not be talking about it and Fed Chairman Bernanke would not have used his first public utterance in six weeks to address the problem. According to an Associated Press writer, both Mr Bush and Mr Bernanke are trying to protect the US economy from the ill effects of the global credit crunch, but they're not bailing out investors. Investors, WHICH investors? The people who borrowed the money may receive relief sufficient for them to continue to service their mortgages for a while. But the focus is not on the borrower, it is on the lender. The oceans of "liquidity" pumped into the system by the Fed and the rest of the world's Central Banks over the past three weeks has not gone to the people who borrowed the money, it has gone to the people who lent it.
A sound economy is based on savings and investment in PRODUCTIVE capacity. A credit-based economy is based on borrowing and spending. The only way to keep a credit-based economy "expanding" is to keep accelerating the rate at which this borrowing and spending is taking place. The first requirement is to keep the LENDERS in a position where they are ready, willing and able to lend. THAT is what has broken down in the global credit crunch that lurched almost out of control three weeks ago. The debt paper is still being issued, but nobody is buying it.
Please remember that anybody who buys any form of debt paper, whether it is a short-term commercial loan, a mortgage, or a long-term government bond, is by that action lending money to the issuer of that paper. Please remember also that this debt paper represents the fundamental "reserve" upon which is built the financial structure of the global financial and monetary system. And please remember that on top of this rests the functioning global economy.
When Mr Bush implies, and Mr Bernanke states in so many words, that their role is to "protect the economy from the financial markets", they are trying to tell anyone who will listen to them that a crisis in one does not necessarily lead to any ill effects in the other. This is absurd on the face of it. Political and financial leaders throughout history have indulged in the same pretense. There has never been a financial disruption or a market crash which was not accompanied by a chorus of claims that the economy was strong.
And so we have Mr Bush and Mr Bernanke telling us all that the US economy is "strong". This weekend is their last chance to do it before the US summer doldrums end and the country swings back into full gear once the Labor Day weekend is over. After Labor Day, US financial markets hit top gear, the US Congress goes back into session, and the nation emerges from its traditional summer haze. It's going to be a lot harder to keep up the pretense that everything is "under control" - starting next week.
And most ominously of all, the Gold price staged another sudden surge on August 31 in the immediate aftermath of the speeches by Mr Bush and Mr Bernanke. It was said in regard to these speeches that one of the main "problems" being addressed is the fact that "concern" has spread from Wall Street and the boardrooms of the big banks to the American people themselves. If this is true, it is not before time. Look for that "concern" to worsen once the US goes back into top gear next week.
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