Right Of The Star

Tuesday, August 10, 2004

Restocking the Arsenal - The Fed Motive?

During the 90’s Alan Greenspan warned against “irrational exuberance” – what I called, “THERE IS NO NEW ECONOMY/OLD ECONOMY – THIS IS CRAP, AND I AM SICK OF HEARING IT - THE ECONOMY HASN’T CHANGED – IF THERE IS NO PROFIT THERE IS NO COMPANY!”

I was just as amazed as Greenspan was that people could fall for the “Internet Bubble” and with time the bubble burst proving us both correct.

In 2000 I surmised that as a result of the jump in energy prices (during the last year of the Clinton Administration) we would have a recession and a significant drop in the stock market. I reviewed the price of crude oil and gasoline over the past 40 years and compared this to historic recessions and market histories. Based on these numbers I predicted that if Clinton didn’t make some type of move we could be headed for stagnation similar to that of the 70’s.

Early in the Bush Administration the initial tax cuts were starting to work their magic, stimulating the economy out of this stagnation.

Then came 9/11 – costing the US economy at least a years growth (the specific amounts will probably never be know – but everything was affected. Didn’t you look at your spending a bit more carefully?) We were at war and a major front in that war became The Economic Home Front. As proven by Ronald Reagan’s Cold War victory the economy of a nation is quite vulnerable to continued attack and if vulnerable enough these attacks can lead to a nations defeat without a single shot being fired.

This front in The War on Terror was defended by the President and Mr. Greenspan as aggressively as the President and Mr. Rumsfield defended the nation in Afghanistan and Iraq. The odds were stacked against us, but the additional tax cuts and dramatic cuts in the Fed Funds Rate brought us back in what can only be described as a victory as dramatic as D-Day, Gulf War I, II, or (pardon my French defeat reference) Waterloo!

Terrorists believe that they know our weaknesses they believe that an attack on our economy is the best way to defeat us. They may be right, but what they don’t understand is that our economy isn’t the Soviet economy. It isn’t even the Socialist economy of the Europeans. Our economy is completely unique and can withstand attacks like 9/11, but not without some help.

This brings me back to my point. The economy still has that drag of high energy prices, partly because of successes of these Terrorists. It influences consumer confidence - seeing that board outside the corner gas station every day affects household spending of almost every family in the country. This spending curb is actually helping to keep inflation in check in a round about manner. So why would the Fed need to raise rates?

They are restocking their arsenal!

If you have common sense and live in the real world you can see that the terrorists have plans to disrupt our election with some type of attack during the next 90 days or so. This attack doesn’t have to be at home, a serious disruption in the flow of oil throughout the world would do the trick and the Fed is nearly out of ammunition.

So how do we fight back? If I were President I would plan an immediate cut in the taxes on gasoline (All Fuel) to take place in the event of an attack– dramatic enough to get everyone’s attention. I would demonize – yes I said demonize those on the left who have prevented the passage of the President’s Energy Plan leaving this flank exposed to attack. These people have left this flank open hoping that the continued small economic attacks would force a change in policy or a complete change in administrations. Thus exposing us to the devastation of a large attack, this is nothing less then the politics of treason.

I would get these two things passed within a week of an attack. (I might even suggest that in a second Bush term these changes, along with the cuts already in place, if made permanent, could ensure continued growth despite these increases in energy prices.)

The ammunition the Fed is now building up is the reserve that will be necessary to fight The Economic Home Front in this War on Terror.


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