Tuesday, December 11, 2007

Here We Go: The Problem of Helicopter Ben

Let's go ahead and make our debt a little less valuable doing Benny boy's favorite maneuver: the ol' helicopter drop. This is the same Bernanke that firmly believes in having a buffer zone for the inflation rate exist(this explains the rate climbing to 5.25 this summer), and because of this believe, initial cuts will seldom have an impact that is substantial. This buffer might prove to be so significant that we may see interest rates plunge lower than they have in years. We know that he is willing to go very low because he has gone as far as to lay out the option of lending to the private sector with a interest rate of zero-he would have to do this indirectly through banks, but there is no doubt it would be effective in the short term by flooding the market with liquid capital while not forcing the market to take on any unwanted debt. But the dangers of this are almost unthinkable, say it with me, loud enough so Ben can hear from up in his Helly: INFLATION!
Ben has made it extremely clear that he doesn't fear inflation. But there is one problem with most of his philosophies that he seems to hold dear: they were formed and first implemented when crude was at 40 dollars a barrel and Iraq had yet to become the disaster it is today. In other words the broad tax cuts that would ordinarily solve this problem simply are not an option.
But the real problem, or should I say the real cause: is that the capital is not where it is supposed to be, and this is because when a year's worth of houses hit the market at once last month(with many more expected to hit soon, suddenly billions of dollars of bank's capital were tied up in bricks, floorboards and windows and its not looking to get much better.
While the Street was praying for a bigger cut, Main Street better hope that somebody starts spending, because if the masses wait to long so to buy a house you'll have to fill it with cash, and the reason would be inflationary as well as the fact that even Bernanke's going to have a tough time getting a decent loan soon.
Note to the Reader: This is the first post I have ever written on economic policy, so if I don't know what I'm talking about or if I do, leave me a comment and let me know.

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