By Denise McCosh
September 28, 2007
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A few additional thoughts on the nature of any rabbits the government can pull out of their hat. I don't know the answer, but maybe by understanding all of the questions that would have be to answered we can arrive at the answer.
Earlier this year I went to hear economist William Seidman speak. He served for Ford and Reagan and was Chairman of the FDIC. I wanted to hear what a renowned economist had to say about everything I was so worried about.
The take away was that he was optimistic, however; his optimism hinged on the government and consumers "continuing to spend at the same rate that they have been spending."
So if the premise is that everything will be fine as long as the government and consumers continue to spend at the same rate, then the question is what can the government do to ensure that this "same rate of spending" continues, other than just lowering the federal funds rate?
What other rabbits can the Fed pull out of its hat to promote more consumer debt and increased federal deficits? How do you maintain consumer spending beyond their means when the value of their biggest asset has declined and they have spent the equity? How do you absorb all of the lost jobs from the housing the market? How does the government keep growing the deficit?
And if they do succeed at all of this, then what are the ramifications - are they not just blowing up the bubble bigger and bigger?
They will also have to take fear out of the market by increasing debt as lenders become more cautious. What rabbits can take fear out of the market place? What role do foreign governments and foreign bank play into this debt/spending equation? They are the ones who have been buying a lot of our debt and so far they have been hurt the most. So what rabbit can the fed pull out of its hat to maintain foreign appetite for American debt?
All of these rabbits would have to be put into the stew to continue the same rate of spending, increase jobs, increase debt, reduce market fear and maintain foreign appetite for US debt.
I really want to attend one of David Walker's fiscal wake up call lectures.
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