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Friday, April 11, 2014

By Michael Mccune: The Rant (US Government auditor for 16 years In Cheyenne, WY. -Monetary Policies Threaten Economy (( to Have Michael send you the Rant to your Email contact Him Here (( mccrant@gmail.com))

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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