Federal, State Government & The Federal Reserve
We appear to be a nation of bubbles. The DOT COM bubble blew most retirement accounts out of the water for years. The dramatic losses still make inexperienced investors nervous about returning to those same waters today.
The recent market volatility and violent swings have pushed consumer confidence down and brought true uncertainty to many areas of our economy. The housing bubble was next, and we are still looking for a bottom on home prices hoping it does not drag us into a recession. Please do not get me started on the falling dollar, inflation concerns, and litany of other economic items.
In the Mayor's view there now appears to be a commodity bubble building on gold, oil, agricultural commodities, and minerals. It seems one bubble has only lead to another, and no lesson seems to have been learned except from policy "wonks" and those crafty politicians. Unfortunately, this has created the start of the most dangerous bubble of all; The Policy Bubble.
In reviewing recent months the government and Federal Reserve policy changes have been extraordinary. Today the Federal Reserve is expected to cut rates by 50 to 100 basis points. Go back and look at the last time some of these steep one-time reductions were even considered. It culminated this weekend with an extraordinary event. A multi-billion dollar bank simply vanished.
We saw the Federal Reserve this weekend require the sale of a 3.5 billion dollar bank, Bear Stearns, for about $250 million dollars. To give you an idea the stock was over $100 dollars a share just a year ago, and was sold this weekend for $2 dollars a share. If you held their common stock....... I am VERY sad for you today!! Why should we the rest of us care though? Well, I will point out the major problem as I see it. It is not the only problem by any means but is the eight-hundred pound gorilla in the bank vault.
If you own stock in any bank what is the value of their assets that help in determining the stock price? This weekend we were just told by the Federal Reserve that any bank's assets are really unknown and their books are meaningless. How are we to understand here in Small City America what to do if the people holding doctorates in Washington and Wall Street do not know what Bear Stearns is really worth? Scary stuff!!
If you pay attention to the housing market you will assume there is a magic bullet for our beleaguered housing market. McCain, Clinton, Obama all have plans to rescue us from the market. I know here at our state level we have bills going all over the place trying to do things they think will help.
I am not against planning, doing things that really help families, and I certainly understand the need for the Federal Reserve. However, I think if you look at the 24/7 news cycle it has contributed to putting pressure on leaders to start reacting to every real and perceived crisis that rears its ugly head.
This is dangerous for our markets and political system. In the Mayor's view the best thing most people in power can show at this time is RESTRAINT. Our markets are working but they need time. We need The Policy Bubble to deflate, and the only people that can bring it about are our Federal Reserve, Federal, and State leaders.
Ending on a brighter note please notice I am still not convinced we are in a recession. Given we are not yet in one is a tremendous testament to our resilient free market system given the shocks of war, terrorism, credit & housing, ....etc. We have a great free market system and let us give it time to work and bring greater prosperity to all Americans helping only minimally with policy and economic tinkering.
