Monetary Policies Threaten
Economy
Two early news items Monday need connecting. The first was the announcement
by Coldwater Creek, a women's clothing store, that it had filed for bankruptcy,
will close all 365 stores and lay off its 6,000 employees by the end of May. The
second report was the Producer Price Index (PPI) which showed prices recorded
their largest increase in three years in March. Put the two items together and
you have a recipe for disaster.
If Coldwater Creek's announcement had come in a vacuum, it would have been
less noticeable but over the first few months of the year the impact of
declining discretionary dollars in consumers' pockets cannot be denied by
anyone. Coldwater joins the failed retailer ranks of Sbarro ( pizza chain),
Ashley Stewart Holdings (another women's clothing chain), Dots LLC and Loehman's
Inc. Dots and Loehman's permanently closed their doors while Sbarro and Ashley
are seeking buyers.
In the Chapter 11 filing in Wilmington, DE, Coldwater listed assets of
$278.5 million and liabilities of $361.3 million. Most of the assets are in the
form of inventory value and most of the liabilities come from past-due bills on
inventory. The filing leaves the company's shareholders with nothing for their
shares.
On the flip side, the PPI--which excludes food and energy prices--rose .6%
in March. The Labor Department report originally figured a .5% increase with a
.1% loss in February but revised February's figure down another .1% which
brought the March report to its current increase. In a reactionary chain, the
dollar trimmed losses against the Japanese yen which will have more going to the
cost of energy while lower prices for U.S. Treasury debt cut those gains.
This is the calculation that has been missing from Fed policy which has
held interest rates at an artificially low level for three years in Operation
Twist. By keeping interest levels in check, the Fed has also disavowed any
inflation pressure which has allowed it to maintain its expansionary monetary
policy to try and nurse the economy back to health. The failure to acknowledge
declining discretionary dollars at the consumer level will unwind the economic
engine even more.
The catch in the Fed policy was the funding never reached consumer
pocketbooks but stopped at the financial sector. With Main Street gagging (a
position the Rant has steadfastly held since the Obama Administration declared
the recession over in June 2009) consumers are forced to make unwanted decisions
with dwindling reserves. They had to decide whether to buy something new or put
heat in the home and food on the table.
The necessities of living those demanded a cut in discretionary spending.
The cuts equated to a rather sharp decline in retail traffic. This is why the
tax-and-spend crowd is in trouble now. The economists' textbook example of
requiring government intervention to stop a recession rather than a free market
has distorted policy decisions. The Federal Reserve decisions made by Ben (BS)
Bernanke are now being seen for the crippling mistake they had to be in the long
run.
The result is the pill America will forced to swallow has just grown
proportionally larger than if the government had gotten out of the way and let
the market find its own level in housing, manufacturing and innovative
development. Instead it propped up dysfunctional entities like Goldman Sachs,
General Motors, AIG, Solyndra, etc.
Wall Street rejoiced but the rest of the country lingered in misery.
To demonstrate the disconnect between the financial sector and the rest of
the country, Senior Economist at PNC Financial Services in Pittsburgh, Gus
Faucher, had the nerve to opine, "It certainly does raise the question whether
inflation is finally on the rise." What world is he living in? Inflationary
pressures have been a constant on Main Street since the housing bubble popped
and the Obama Administration began stealing at record rates from consumer
pocketbooks.
The final irony is the assessment the food price increases come from the
"drought in the West." This is attributed to global warming. But the severity
of weather storms, which contributed to record snowfall in the Rocky Mountains
and massive rainfalls in later summer, have been on the uptick. By falsely
shifting blame on weather swings to carbon dioxide emissions, the government has
been able to postpone looking in the mirror to determine how its policies have
hampered the economic recovery.
Obamacare and other government intrusions into daily life of the
"rich" store owners have pushed their costs higher at a time demand for on-shelf
products was falling.
The wild gyrations in the stock markets recently are a sure indicator the
surge Obama has ridden for nearly five years is about to get extremely risky.
The drastic money tampering measures taken by the Fed and the stubborn clinging
to socialistic views by Harry Reid, Obama and Nancy Pelosi have set the stage
for another economic meltdown.
This time there are more distress signals from different parts of the world
at almost every level than there were in 2007. Unfortunately, at a time America
needs a strong government, it has less trust in its political leadership than at
any time since the Watergate scandal. The government, by abuse and overreach of
power, has wasted goodwill needlessly, goodwill it could now employ.
In the final assessment as the government staggers from crisis to crisis
is American citizens no longer have the resources to withstand another financial
shock. 'Recovering' from the last one has left them vulnerable to all sorts of
nasty economic travails.
"I have sworn on the altar of God eternal hostility
to every form of tyranny over the mind of man."--Thomas
Jefferson
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