It was inevitable. People are flipping out. They’re begging for a rate-cut, but truth be told, we’re in a damned-if-you-do, damned-if-you-don’t situation. Things are going to get worse before they get better, but take heart, they will get better.
1) The housing market crash is going to pull the rug out from under many lenders. The ARM has jumped and the number of foreclosures has increased. The recent half-point interest rate cut will save some people from going belly-up, but the trade-off is a weakening dollar. The current instability has foreign investors in the currency worried, and there’s fears of a sell-off of currency, which will drive down the value of the dollar.
2) We’re already seeing the result of the half-point cut in the fact the value of the dollar is tumbling. As it stands, Bernake is trying to minimize the damage of the poor business practices of the past 6 years. The good news is that the damage from those practices will seem severe in the short-term, but the economy will be able to recover after a recession. It’s my recommendation that the economy be allowed to slow down and suffer the negative effects of this downturn to rebound faster and stronger. Cutting the interest rates is only going to prolong the inevitable and hurt the dollar.
3) I’ve never been worried about a “strong dollar” or a “weak dollar” until now, simply because the dollar looks to be in a freefall. The Canadian dollar is now trading nearly equal to the American dollar, which just shows how far the dollar has gone. This will help American exports and hurt the import markets, and we should see a spike in inflation, but again, it’s short term. The markets need to restabilize after this housing problem, and once it does, we can begin rebuilding.
Don’t fight the future. Let it happen, but plan on how to come out of the recession stronger. And don’t blame Bush for this, whatever you do. The President has little to do with the economy, and the economy has been doing well under Bush. The fact that one market will depress the economy for the short-term is nothing that you can fault Bush for. Heck, we’ve been fighting a war overseas and in the meantime the deficit of 2003 has nearly been eliminated. That’s a remarkable achievement.