FED to Publish Market Predictions (and Save the Economy)

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Bernanke presents state of the economy

Ben Bernanke Makes Big Decisions About Economy

What is the Fed Doing?

The FED has announced their insider market predictions for the world’s markets would be published on January 25,2012 and periodically afterwards.  This landmark act would put the FED’s view on every field, from property sales to stock options, in the hands of the investors.  These projections are some of the most reliable in the world.  This publicizing of information is designed to prepare firms for future turns of the market and inject faith in the financial sector into the capricious investors.  Hopefully, this will kick-start a financial boom.

Why is the FED publishing its reports?

The Federal Reserve is hedging against financial busts.  Busts in the stock market rapidly dissolve trillions of dollars in just days.  The Federal Reserve System, the central banking for the United States, is designed to prevent such catastrophes.  In recent years they have been successful in mitigating busts; however, they have never been able to prevent them.  The FED is attempting to build a new, innovative barrier against sell offs with by posting their predictions: trust.

Why does trust matter?

Trust is essential.  Investor’s careers revolve around moving money.  They buy up capital, which is anything from stocks to beach condos, and sell it once it reaches peak value.  Then they repeat the process.  This simple cycle is the basis of Wall Street.  When inventors do not have faith in the market problems multiply.

Nervous investors sell off in droves at the least opportune times.  This can create market failure, instantly obliterating massive quantities of capital.  By selling off hastily these investors are wasting value and are actually hurting the value of their capital.  Investors that trust the market do not sell off capital until the time is right.  This builds up the market and has allowed the financial sector to prosper.

Through publishing its own facts and figures the FED is injecting trust into Wall Street.  By predicting the trends across the market the FED is allowing investors can acclimate to bends and dips in their projections before they arrive.  Before, capacious investors would be sent into widespread sell-offs at the slightest worry.  The FED hopes that their own figures will calm fears in tumultuous times and weaken the gravity of these sell offs.  The FED is coaxing the investors into a much more reliable rise-decline market cycle which is greatly preferable to the destructive boom-bust cycle we have at present.

Why has the Fed not published it’s predictions before?

They were afraid they could be wrong.

Predictions are never perfect.  Even in the best of times the finest analysts in the world can only make guesses about the state of the market in the near future.  The further out projections plan the less reliable they are.

Previous FED officials were concerned that unforeseeable fallacies in their predictions would disrupt the markets.  Black swans, events which are both highly unpredictable and highly destructive, could tear asunder all predictions and undermine the credibility of the FED.  A loss of trust in the FED, perhaps the single largest force in the world of investing, would result in financial armageddon.

Will this action jumpstart the economy?

Yes.

The finicky investors need this trust to be prosperous.  Before the 2007-2008 Recession the market moved gracefully, positive trends of perhaps a few points per day provided good steady investments for everyone.  Today, it is unsurprising for the DOW to jump over a hundred points in any direction.  This is bad; it jeopardizes the market because with this capricious behavior no investment is safe.  Investors are damaging the market with short sell offs and ragged growth rather than cultivating it.

The FED is pushing the markets back towards the stable growth with their predictions.  Investors will have a baseline prediction to affirm their own predictions.  In addition, the projections of the FED will become self-fulfilling prophecies.  If investors are told the markets will get better they will prepare their own assets for just that eventuality, in doing so they will prepare the market for the FED’s plan of growth.  This move will propel the economy in the right direction.

What is “Occupy Wall Street?” : The American Variant of the Arab Spring & The Origin of the Second American Revolution

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IMG_7418

Occupy Wall Street Protesters Arrested For Campaigning For Basic Human Rights

It should be noted that the Arab Spring flared in America on September 24, 2011 and has since burned brightly, lighting downtown New York City while singeing Chicago, Denver, and Los Angles.  This global revolution has taken the form Occupy Wall Street here in America.  They campaign for ethical reforms for majority of the population, which are needed to combat the unconstitutional and immoral actions of the richest 1% of the population.   In the words of Michael Moore, “Something has Started.” This is the beginning of the Second American Revolution.

What are the Occupy Wall Street Protestors Moving to Accomplish?

They want to enact economic and judicial reforms on a national scale.

They are campaigning against a broad range of failings that have hurt the American public.  Several important issues are combating corporate greed, unshackling union’s collective bargaining rights in Wisconsin, and overturning Citizens United v. Federal Election Commission, a Supreme Court Decision that gave corporations the right to invest unlimited funds in political campaigns.  Many demonstrators believe the financial sector, embodied by the Wall Street Stock exchange, to be at the heart of these problems.  This is why ground zero for Occupy Wall Street is in New York City; they really just want their voices to be heard in the increasingly polarized and glaringly corporate political battleground.

Will They Be Successful?

Yes.

Their protest is the American manifestation of the Arab Spring, which has uniformly been unstoppable.  The trend with this sociopolitical titan has been that nations either meet the demands of the populace or inevitably fall to rebellion.  These protests will be historically noted as the beginning of either one or the other in America.

The Arab Spring has already been felt around the world, from the revolting Arab nations successfully completing revolutions, British looting of London, and Greek riots spreading anarchy.  Everywhere people are revolting against the same issues, only the names and places are different.  It is likely historians will it call the Jasmine Revolution, after its original name with the fiery startup in Tunisia.

These initial protests may not be successful, perhaps doing little more than slowing a few investors commute.  What is significant is that Americans are mobilizing not against any specific issue, but instead against the decaying economic order.  They are protesting the schism between the astounding wealthy and the numerous poor.  This is similar to other “Jasmine Revolutions.”

How Does Occupy Wall Street Resemble the Arab Spring?

Occupy Wall Street, which can be identified as a public organization for economic reform, bears striking similarities to the origins of most Arab Spring revolutions.

The Tunisians, the first pioneer of the Arab Spring, say their revolution was sparked by “unbalanced economic growth” as well.  Egyptians revolted due to, “rising food prices, high unemployment, and the corruption that pervades economic life in the region.”  Yemen is on the verge of a regime change, because of a widely corrupt government and major “economic grievances.”  With the exception of the corruption, all of these concerns are prevalent in every region of the United States.  The maldistribuiton of wealth and resources in America parallels those of the revolting Arab States; it was only a matter of time before distraught and jobless citizens took action.

Why Has There Been Police Brutality?

I would like to make note that while there have been a few occasions, including one incident involving dangerous use of pepper spray and others where police aggressively arrested unruly protesters, on the whole Occupy Wall Street has not suffered from unexpected amounts of police brutality.  This is a large-scale, well covered protest; incidents of this nature happen during such demonstrations.   It could be much worse and much more violent.  These cases of controversial police aggression are regrettable results from the patriotic activism of the protesters going beyond conventional terms of engagement.  These protesters knew the risks when they decided to stand up for what they believed in.  The policemen are simply doing their jobs; I would not judge them too critically lest they desert our popular cause entirely.  Everybody knows they did wrong, all we can hope is that incidents do not persist.

Democrats and Republicans Playing Chicken With the American Economy: How Polarized Bipartisanship In Congress Will Decimate Critical Concerns (Like Issuing Social Security Checks and Staving Off A Double Dip Recession)

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FDR on Social Security

Social Security: The Primary Financial Safety Net For Retirees

American seniors will be the first casualties of the debt limit; followed sequentially by Wall Street, the domestic economy, and finally the international economy.  President Obama and Senator Henry Reid’s ultimatum to the stubborn Republicans is that unless the public debt ceiling is raised the country will be forced to halt transfer of social security checks.  Both sides have agreed to reduce the increasing debt, however the specific amount is debated, fluctuating in the trillions.  The time for procrastination is running out.  If the August 2, 2011 deadline is not met the American dollar will become worthless as credit rating agencies, like Moody’s, will no longer support the Federal Reserve.  Not to fear monger, but this a potentially catastrophic financial disaster that stems from several men being unable to agree on a set of numbers.

What is the Democrats Positions?

The Democrats have united around Obama and the Democrats Congress Leaders.  Their unified polices have forwarded relatively generous offers to the Republicans.  Talks have been breaking down at this point, as they are repeatedly snubbed.  Their offers have been denied, there fair deals do not meet the requisites of the Republicans.  They are collectively determined to stay strong and stay the course; their economics work and will sustain the country and they know that their generous deals that they have submitted are feasible.  They just have to get the Republicans to agree.

What is the Republicans Position?

Despite the necessity for tax hikes Republicans uniformly oppose any new taxes.  This is where coordination break down, various factions of the GOP are each concocting their increasing implausible schemes to propose on the Senate floor.  They cannot create a coalition policy that might be taken seriously.

The crisis has become a ammo for the campaigns of the Republican candidates.  Romney pleads for cutting and capping of federal spending. Bachmann has accused Obama of holding the government hostage to continue the government’s spending spree.  Just like the senators, there specifics disagree while their cause does not.

This will result in their demands being painfully denied.

What is the Probable Resolution?

The Republicans  will cave at the last second, giving away a deal that is much less favorable towards them than what they originally rejected.  Their “non new revenue” rhetoric has shown negatively in the public’s eye.  Polls heavily favor the Democrats, because they have appear reasonable and open to debate while the republicans have been demanding ridiculous cuts that will do more harm than good.  Without public backing or good economics their situation is unsustainable and they will have to cave.

In the, unthinkable, event that Republican leaders carry out this game of chicken till it finality,  the result will be their own self-destruction.  There will be a the initiation of the second dip in a double dip recession on August 2, 2011.  The investors on Wall Street will panic as their traditional stable government mishandled the largest debt in the world and endangers national security.  Social Security checks will stop coming, granny will start starving.  Millions of Section 8 tenants will be tossed out in the streets until the government checks come.  Fannie Mae and Freddie Mac, with their millions of mortgages, shut down.   Protests will be held, riots will form.  We will all remember the event with a few days of anarchy until the Republican leadership can recover what little sense they have left.  Unless, of course, their million dollar mansions are burned down with them in it.

What is Public Debt and How Has it Accumulated?

Whenever a spending deficit in the government occurs, such as when finances for federal programs exceeds tax revenue, Congress covers the excess with bonds; these bonds are the source of public debt.  It is not in the best interests of governments to issue bonds unless pressed because every bond, even with inflation, pays off more money than it takes to buy one.  The government loses money on every bond.

Why Would the Government Have Any Public Debt?

Historically, only when clear and present threats to national security emerge are bonds issued.  These finance the war effort and allow the nation to persist.  This is fine and encouraged.  Issues arise first when public debt is unnecessarily accumulated and the danger of the national debt ceiling.  The debt ceiling is the amount set by Congress that can be withdrawn; defaulting or going over the national debt is unthinkable.  The consequences would freeze international investing, because nobody will be able to rely on the Federal Reserve.

Why is the Debt Hitting the Debt Ceiling?

Unnecessarily accumulation by fiscally inept leaders.  Our last president, George Bush exuberantly quarterbacked  two of the most long and expensive wars of our time while engaging in risky self promoting publicity stunts, such as the Bush Tax Cuts.  These terrible money hoarding policies dealt stole trillions of dollars from the majority of the American tax payers, funneling it to the richest Americans.  Collectively, these policies led us down the wrong path, creation short-term economic gains at great expense for those who suffer in the 2008 recession.  Financially, this is major defeat, comparable to Battle of Waterloo or the baseball curse that halts the Cubs from ever winning a World Series.  Politically, it bought him his second term.

The CFTC (Commodity Futures Tragedy Commission) and the Oil Bubble Bursting (All Over the American Economy)

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Car fire Freshfield road  09/01/2006 05:06
Pictured: The American Economy in the Aftermath of the Oil Bubble

Today, crude oil prices fell by a pay jaw dropping four percent; the cascading effects through the international economy will reduce all costs and prices in a few short weeks.  However, the damage by the four month oil bubble has already culminated and several destitute developments.  Americans have been saddled with a devalued dollar and increasingly reckless investors.  Inflation during the oil bubble drove up prices and despite energy costs decreasing all other prices will remain high. Wall Street traders first drove the price of oil up through over eager investments and now are backpedaling at record rates as the economy suffers a stinging blow that could result in a double dip recession.  The Commodity Futures Trading Commission, who monitors this market, not only allowed this financial disaster to happen but openly encouraged it in defiance of Congress.

How Did the Oil Bubble Devalue the Dollar?

In the past couple of months wrenching transportation costs caused by the oil bubble drove up energy prices around the world.  When transportation costs rise sellers of goods have to raise prices in order to stay profitable; this drives prices for goods across all markets.  The rises in rapid inflation.  Despite the costs now dropping the dollar has already been devalued; prices will remain higher than before the oil bubble.  This distressing fact manifests in every developed nation, as the latest paychecks will be worth a little bit less and economic slump will sag a little bit more.  The United States will be hit worst by this crisis because nearly all OPEC reserves are traded in American dollars.

What Do Wall Street Traders have to do with the Oil Bubble?

One of the largest markets that investors gamble in is futures.  This financial system acts like a delayed contract.   Businesses generally buy products with money in normal transactions; futures allows those same contracts to be used on goods produced in the future, sometimes before they are even produced.  By speculating on the price investors beat the market rate and make small fortunes.  The problem with this process is that these contracts can be bought multiple times and each time the price of the gas rises to balance out the cost to obtain the future.  To further compound the issue third part investors can bet on the contracts as well, driving energy prices up over 40% of their real value.    This drives up energy prices, along with every facet of the economy, at record rates with bounding inflation.  Once these investors realize their futures are overvalued they rapidly sell off them, resulting in 4% dip in crude oil prices today.

Why Was This Harmful Speculation Allowed?

Senator Bernie Sanders, a prominent socialist from Vermont with one of the most progressive stances in Congress, outlined how this financial debacle endangered the United States and how it could have been easily prevented.  The Commodity Futures Trading Commission, which is supposed to monitor, was given strict speculating limits to prevent this exact scenario.  While energy prices would have risen they would have not bubbled and busted catastrophically.  However, the CFTC deliberately disregarded its duties, not implementing Congress appointed restrictions on the futures market. Corporatist leadership within the Commission is having its hand forced by Congress as a bill is being passed that will force this government institution to do its job.  These reactionary measure will prevent this type of bubble from forming ever again, if administer properly.

China Preparing For Recession: Record High Reserve Ratios Triggers Investment Crisis (And the 2011 Recession)

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Clothing factory in Dongguan, China

China is on the verge of unleashing a cataclysmic recession in mid to late 2011 and they know it.  Harsh economic policies have cut back private sector investments in the economy, ordering the largest banks in the country to keep record quantities of capital in reserve rather than lending it out to investors.  This will only aggravate the thirty-four month high inflation in China, currently at 5.5%, and will further stagnate the marketplace.  Industrial output has slowed, only rising by 13.3%, the smallest rate the Chinese economy has seen in twenty years.  The Chinese economy is slowing down and the Chinese government fears this will kick off a recession; by acting on these fears they might do just that.

Why Are Investments Declining in China?

The Chinese government has decreed that the reserve ratio held by all of the large banks, the counterparts to Bank of America and Citigroup, must be above 21.5 percent.  In comparison, America’s percentage is less than half of this rate. The reserve ratio is the percentage of all deposits in the bank that is held with absolute liquidity, meaning it can be spent at any time.  The rest is generally invested.  The more money that is invested the faster an economy grows.  A high reserve ratio means lower investments.  Lower investments correlates directly to decreasing economic growth; with less money being put into building homes and businesses the overall economy slows down.  This will trigger a recession if left unattended.

Are the Chinese Purposefully Causing A Recession?

No, they are shielding their economy from the worst of the projected recession. By raising the reserve ratio to record levels banks means that Chinese banks will be much more stable for this financial cataclysm.  It means they will have far fewer loans lent out, so when borrowers inevitably default less money will be lost overall.  In addition, the higher reserves will give the banks much more stable financial basis.  They will be able to pay off debts as they arise and will not be forced to look for bailout or fall into bankruptcy.  The peculiarly high reserve ratio protects the financial sector of China during the recession.  In the aftermath, private banks will be architects of financial reconstruction rather than panhandlers weighing down the economy.  If the United States had implemented this strategy before the 2008 recession there would have been few if any bank failures, they would have reserves on hand to prevent bankruptcy.

What is the Reserve Ratio?

The reserve ratio the percentage of money that each bank has to keep on hand at all times out of all of the deposits they have been trusted with.  The rest can be lent out, earning the banks a tidy profit while expanding the economy.   The American reserve ration rests around ten percent; this lower ratio allows much more money to be lent out.  While this does allow greater investments there has increased risk of too many people defaulting and driving the bank into bankruptcy.  Lehman Brothers and Bear Stearns failed during the 2008 recession because bad investments torpedoed the companies and the low reserve ratios were inadequate to patch the damage and meet payments.

How Will This Higher Reserve Rate Affect America?

In the short-term it will buoy up the Western economy, once the recession hits it will trigger the second dip in what will be known as the worst recession since the Great Depression.  International investors will flock to American and European banks as they are denied by Chinese limit their investments, especially risky ones.  This influx of mortgages and loans will translate into healthy profits for the banks of America.  Higher profits mean hiring more employees and expanding operations.  That is if the Chinese markets do not implode, like the Chinese are predicting.  Without high reserve ratios and with the risky investments taken from the Chinese markets western banks will be besieged by foreclosures and defaulted loans.  More banks will fail in the United States and the Western economy will plummet.  Only those who had the foresight to prepare for this disaster, the Chinese, will prosper.  In the aftermath of the 2011 recession, with the elimination of competition and rising demands for investments, the East will hold great and unprecedented financial power.

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