Ever hear of the $62 Trillion (Current + S.S. deficit) U.S. debt?

Got any idea what the “interest” payments on that is daily…monthly…annually?

One small basis point = $Billions….

Every increase in the Funds or Discount rates must be weighed against the amount of “dilution” it will add to the money supply…which will not help the current “collapse”, but rather accelerate it….

Hang on to your hats, gents…we ain’t seen nuthin’ yet….!

Carter nominated Paul Voelker specifically to create interest rate drops that are falsely credited to Reagan.

But the real magic DURING Carter’s financial program was the ITC, the investment tax credit.

Sometimes, as under Voelker, the Fed can move mountains. But it’s a mistake to look for that from them today.

We need to clean house in Washington, replacing the Bush deadwood, apologists and hangers-on (especially including McCain, of course).

Virtually any replacement for this sad gang will fire up our economy again.

A crucial and obvious step will be restoration of investment tax credits. The automaic small business startups and expansions will directly and immediately create huge numbers of jobs in the only important sector.

Housing is STILL OVERPRICED AND THIS CORRECTION NEEDS TO HAPPEN.

Greed of homeowners and greed of banks=
ruining it for the average person.

I don’t blame you — because this TRULY is such a bizarre situation, a real riddle — a once-in-a-generation situation. But you do seem to be repeatedly visiting the same ‘conundrum’ and its putative solutions — but then this is same trip the FED takes each day whenever Ben Bernanke stumbles into his office.

The FED is between a rock and a hard place — of its own making, IMHO.

Whether it fights inflation or fights the current economic contraction caused by the ongoing debt-credit Bubble implosion amounts to the same thing — six of one equals a half dozen of the other.

The question the FED is asking and you are repeating to us is “How do you want your poison?”

What’s the logical “best” answer? There is none. We naturally would have preferred to AVOID the poison in the first place, assuming that we have a desire to live. Today there is NO CHOICE.

When you have thrown your economic baby off the bridge the answer to the question “How do we save the baby?” does not have a very reassuring reply. The realistic response is that the ‘problem’ does not have a ’solution’ — as much as our individual experience and education and naturally optimistic predispositions might have otherwise suggested — that is, that every problem necessarily MUST have a corresponding ’solution’.

The only correct response is “that we should NEVER have gotten into this situation in the first place”. And since we have gotten into it, let’s at the very least learn enough from this pain so that we don’t do it again, so as to unnecessarily REPEAT the pain!

Look, IMHO, this is a False Dichotomy. The FED has only so many “kicks at the can” before its monetary ’stimulation’ loses its kick, its juice, its ability to stimulate, etc. As the old saying goes, the FED will be “pushing on a string”. It has visited this well just one time too many in ’solving’ previous bursting bubbles (of its own making).

You can destroy the economy by allowing the current unsustainable Monstrous Credit Bubble to collapse. Alternatively, you can destroy the currency and the discretionary purchasing power of middleclass consumers by letting inflation become unmanageable.

People’s incomes are not going to keep pace with rising core prices. The result? — so-called discretionary income left over from the consumers’ “core” purchases will continually diminish and those employed in non-core parts of the economy will HURT as those non-core parts contract. As a reaction, those non-core parts will desperately COMPETE with each other by lowering their prices — actually activating temporary relative price deflation in THOSE non-core segments as they try to hang on with their fingernails to dear economic survival — but some of them will succumb.

What I am saying is that the economic contraction you are trying to avoid by INITIALLY only addressing the “credit crunch” by ignoring the fight against inflation WILL lead directly to that same CONTRACTION regardless of which poison you drink.

This current slowly-imploding Bubble is the Mother of all (the other) Bubbles. It is the result of the FED’s previously applied ’solutions’. Each time the FED — in order to “solve” the previous problem — has inflated a new Bubble to mitigate the painful contraction of the preceding Bubble. It got accustomed to so doing — hey, it always worked before, why not again and again?

Thereby the FED has necessarily caused our Society to take on ever-increasing amounts of Accumulated Debt (i.e. “Credit”). This debt is personal, corporate, and governmental. Its growth can no longer be sustained. Ultimately that is what this whole mess is all about. By one measure I read, it now takes more than $4 of new debt to create $1 of new GNP growth.

As your next article, please consider asking your Readership if We Have Just Reached The Ultimate Societal Debt Limit. Have we gone to a bridge too far?

IMO, there is no ‘easy’ way out this time — no light at the end of the tunnel — unless that light is coming from the proverbial onrushing train itself.

I am not suggesting that a ‘FED holding action’ which helps Fannie and Freddie and other financial institutions has no merit. But we need to be realistic. There is no magic bullet. The monetary vampires have been unleashed and they will live for many a day, wreaking damage wherever they go, before they are once again harmlessly sequestered in their coffins.

Your other contributors are right IMHO in trying to assess which specific courses of action cause the least pain to the least number. They are correct to examine the social costs. Whither goes the middle class goes our Western society.

Concurrent with such ‘holding actions’ (which IMHO can only be characterized as such) we should be examining what some other writers have alluded to.

How much socialization of our housing do we want? Freddie and Fannie may have been initially founded on a false premise — owner-occupied housing for everyone sounds all-inclusive, very Obama-esque, very statesmanlike, very American, but is it realistic? At what cost? Are we our Brother’s Keeper as far as owner-occupied housing goes? Can we afford it today? Can we really afford ANYTHING we want?

I have no sympathy for those who blame the current mess on only those misguided or ‘greedy’ souls who bought homes they could not afford. Or were ‘duped’ into buying. Please.

When the FED manipulates the money supply and lowers interest rates to obscenely low levels, then it directly pulls the puppet strings of Everyman, of every consumer, of every industrialist, every work-giver (employer) and employee, of every startup and small business, of every investor, of every borrower and lender. The FED does this because it directly causes the system to send out false signals and false information upon which we base our economic decision-making.

Paul, I don’t think the personal dilemma you have in your writing about whether to fight inflation or instead to fight the ‘credit crunch’ is misguided or intentionally wrong as such. IMHO you show respect for those many amongst us who struggle. You show empathy. And you show that you, like many of us, are confused about ‘where to go’ next.

What I suggest is that while well-meaning, your question is misdirecting our attention from the actual problem or actual solution. It is not one or the other. In one sense it is neither.

When we design a system that is itself faulty — but where the faultiness does not make itself apparent for more than the average person’s historical perspective — is it right to ask about a symptom of that faulty system?

Is it right to focus on the symptom of someone’s disease — like fever — and try to only fight that without examining the underlying disease?

No — we need to examine the whole patient.

And in “trashing about” and in trying to fight the fever with no attention given to the whole — by asking whether we should we cool inflation by fighting that first, or by asking if we should fight the crunch first, by ‘feeding’ the patient more ‘nutrition’ — we may be treating the symptoms, and doing nothing with respect to the underlying pathology.

Thanks for all the good work! Please keep on truckin’!

Oh, yeah, I know, because of the twin conditions that they can charge high rates and assume no risk.

What about this for solutions.

Solve the problem of credit card companies giving cards to college students and unemployed (and the like) by not allowing them to charge more then a couple of points over inflation. If they can’t afford very many defaults, they wont lend to people who can’t pay.

Solve the problem with mortgages to people who can’t pay them by making who ever writes the loans carry them. (no bailouts either)

More easy money is not what is needed. Credit in a society is like Goldilock’s bed. Not to soft, not to hard. It has been mighty mighty soft for a long time.

I guess Joseph didn’t notice that the wealth in this nation left a while ago. We have been trading it for consumable stuff (that we, oh yeah, consumed,) leaving us with no wealth, just debt. “Cheap money” wont give us wealth. Only production will.

We need a two pronged approach to combat inflation. First, interest rates need to go up to help stamp out rising inflation. Second, all bans on oil drilling should be retired so that additional oil supply can lower prices across the board for everyone.

What the government is doing right now isn’t working, and hasn’t worked for years. We need to stop acting like this is a little league game where score isn’t kept and everybody wins. The real world isn’t fair and is full of failure. It’s time to let these lenders fail, stop inflation, and reinstate all the safeguards on lending that have been relaxed or removed since the great depression. Had those safeguards been bolstered and left in place, we wouldn’t be in the mess we’re in today.

WOW this means the entire banking system is about to collapse and if you do not move your money out of American banks by this Wednesday you will lose all your money. The FDIC is itself bankrupt.

The Administration and Congress are responsible for fiscal policy and have let the Fed “carry the ball” , so to speak, ande have avoided addressing tough fiscal decisions. They have failed miserably and need to quit “passing the buck” to the Fed

While the Administration and Congress fiddle, our Economy burns.

The Fed is lying to everyone like a spend thrift sponse who doesn’t let his/her partner know what is going on.

Last year Congress raised the national debt from 8.9 trillion to 9.8 trillion. They report a deifict of 258 billion yet the national debt is now 9.48 trillion dollars. How did the Feds fail to report almost 300 billion in the deficit???

The Fed is broke and once everyone realizes it no one will want U.S. stocks or bonds or T-bills.