Friday, November 5, 2010

The Fed goes one way ... is the economy going the other?

Dear Colleagues

Some metrics about the US economy ... a few months of new job creation at a rate of more than 100,000 a month, and 10 months of positive private sector job creation. A modest sign of the increased stability of the job situation in the United States ... but the average unemployment rate of 9.5% is way too high ... and the level of better job seekers may be as high as 17%.

The financial and big corporate community has plenty of cash ... and is getting very low cost credit if they want it ... not so much the small business that is struggling on the front line of little aggregate demand.

The US Fed has chosen to launch a new round of quantitative easing ... QE2 ... and when it was announced the US stock market went up a near record amount ... to a level that is about where the stockmarket was before the financial implosion.

Bluntly put ... something is very wrong with the way the markets are working and how the levers of power are being manipulated,

Apparently the German financial minister has described the US Fed's action as "clueless" and many others are looking at the present US situation with increasing concern ... not to mention their view of the US electorate's enthusiasm for the Tea Party and Republican agenda. Serious foreigners seem to have a longer memory than the American voters ... who seem to forget that it was free spending Republicans and an anything goes approach to regulation that precipitated the financial disaster ... and without very responsible government intervention for the past 24 months saved the day. We should never forget!

William Fleckenstein who is an expert on the Fed seems to have a better perspective than most about what the Fed should be doing ... others associated with the US capital markets are laughing all the way to the bank because printing money is making their speculation profitable!

The system is very dangerous and needs better metrics ... metrics like True Value Metrics that have a value component for society as well as the money profit for investors.

Peter Burgess

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