The Economy: Now What?

As some of you know, we famously predicted the collapse of the housing market after the 2004-2005 Hurricane seasons ravaged Florida, Alabama, Mississippi, Louisiana, and Texas.

A year ago, I wrote a follow-up that explained the need for Acceptance (tm) ... in other words, we needed to accept the coming fall in housing, and plan accordingly.

Again, I wrote that in March of 2007.

That was plenty of time for the geniuses at Bears Stearns to divest themselves of some of their sub-prime mortgage investments at a loss ... a small loss, compared to the full-blown Ebola virus eating away at their company's existence!

But, hey, what do I know? I'm just a writer on the web. I'm nobody, as far as the GENIUSES are concerned.

For some reason, I actually believed the folks on Wall Street would take the proper action....

A couple of days ago, I read this article thanks to Drudge, where 82-year-old famed economist Anna Schwartz basically said what I said a year ago.

God bless her ... but if she's the smartest economist whom people respect ... then we are clearly doomed. It is clear that the younger "Wise" men and women on Wall Street, who should be rising to to fill Anna's, and Milton Friedman's, shoes aren't worth the paper their MBAs are printed on, or their salaries.

My friend Damian asked me, "Now what do we do? What's the solution?"

The solution that I prescribed a year ago remains the same ... unfortunately, the treatment will be more painful.

As I've explained in the past, the actions of the Fed to lower rates to 1% Post 9-11 merely moved our economic troubles from that time into the future ... AND, it increased the nature of the problem.

So, what does the Fed do now, knowing what's happening? They lower rates to below 3%!

Whatever happened to historic lows? Don't they understand that 4% is a perfectly reasonable interest rate?

Do they really think that putting the rate below 3% will bring confidence back into the economy? Sorry, Mr. Bernanke, but that was a one-trick pony, and Mr. Greenspan already rode it.

I was okay with lowering the rate to 4% ... but Bernanke needs to stop listening to the braying on Wall Street. It's time to stand firm, and let the dominoes fall where they may. Instead, Mr. Bernanke seems determined to add more dominoes to the cascading stack, toppling over more citizens and financial institutions in its wake.


The longer the Federal Reserve, along with Treasury Secretary Paulson and the politicians on Capital Hill, continue to delay the inevitable, the harder the economy will crash when they finally run out of tricks.

I pray the Fed stops lowering rates. I pray that certain financial institutions are allowed to die in peace -- Bears Stearns is starting to look like Weekend at Bernie's, for goodness sakes!

The economy will survive. The dollar will recover ... eventually. We'll get through it.

We must take our economic castor oil. The credit binge, individually and collectively, must stop. And it will stop, whether we like it, or not.