Economic Fundamentals Are Strong

Written by Chuck Floyd on 2008-09-16T17:58:41+00:00

The economic condition of the US is a direct result of actions by the US Congress.  The Congress and the Bush Administration both wanted more low income individuals as home owners.  The Feds and the market created new investment instruments (i.e. hedge funds) to run up the markets and Wall-Street profits.

New programs were established where an individual did not have to put any money down and the margains were lowered.  Therefore, with these liberal rules and nothing down scheme, people did not have "any skin in the game" and are just walking from their mortgages.  Look at the millions of dollars the senior executives of Freddie and Fannie have made at the investor and tax payer expense!

When Wall Street plays with different market instruments and bets on futures, then someone will always be a loser.  Greed on Wall Street is playing out and the CEO's who run these companies into the ground are walking away with millions of dollars in their pockets.

The Federal Reserve decided against cutting interest rates today, even as Wall Street teetered, but indicated it could cut rates if the problems in the financial system create deeper problems in the overall U.S. economy.  The central bank resisted calls from many on Wall Street that it cut that rate in order to help ease the blow to the economy and financial firms reeling from the bankruptcy of Lehman Brothers, acquisition of Merrill Lynch, and potential bankruptcy of insurance giant AIG. Indeed, on options markets yesterday afternoon, traders priced in more than a 50 percent chance that the central bank would cut rates.

The Fed's policymaking committee, in a meeting scheduled long before the crisis in the financial world began, elected to leave the federal funds rate unchanged at 2 percent. That rate, at which banks lend to each other, ultimately affects what Americans pay to borrow money through credit cards, adjustable rate mortgages, and auto loans.

There are strains in financial markets and it has the average person concerned about the economy.  Economic growth appears to have slowed recently, partly reflecting a softening of household spending.  Tight credit conditions, the ongoing housing contraction, and some slowing in export growth are likely to weigh on economic growth over the next few quarters.

However, do not let the Democrats scare you and cause an economic crisis when our free-market system is working.  We must let a few Wall Street firms fail so they get back to the fundamentals of the open market.