Brace Yourselves

I have been staring is disbelief at an AP story this morning. Now I know that the AP is not up to the journalistic standards of accuracy as, say, the New York Times or the Washington Post. But the fact is their stuff gets widely distributed and widely read.

The first line is the report was:

“Consumers, battered by a steep downturn in housing and a severe credit crunch, slowed their spending growth in September while a key gauge of factory activity flashed its weakest reading in seven months in October.”

And this is a surprise?

And the article continued:

“. . . manufacturing index dipped to 50.9 in October . . .” and “A reading below 50 indicates that manufacturing activity is contracting.”

Yeah, so? Why are you surprised by this?

And finally:

“The Federal Reserve on Wednesday cut a key interest rate for the second time in six weeks in an effort to make sure the economy does not tumble into a recession. However, the central bank also expressed concerns that surging oil prices could fan inflation pressures. Oil prices have soared to record highs in recent days.”

No s*** Sherlock.

Haven’t we been talking about this now for TWO months?

Let’s recap. Central banks around the world dump a couple of hundred billion into the economy for the SOLE purpose of propping up sagging stock markets without any concern at all about inflation. It works temporarily, then the markets get jittery again. So they dump MORE.

In the mean time, the subprime mortgage sector crashes and burns, and pretty much every financial institution tightened up on their credit criteria. This was actually a good thing, because it should have counteracted the Fed’s reckless dumping activity.

But unfortunately the Fed wasn’t done yet. Now shifting their focus from the stock market back to the economy (which by the way are two VERY different things) they decide to lower interest rates. Several times. Which counteracts the credit crunch but makes the inflation problem worse.

Do you know what the worst part is? Let me defer to the AP report again:

“The worse-than-expected economic news sent stocks lower with the Dow Jones industrial average down more than 200 points in the first hour of trading Thursday.”

So after all of the meddling, the dumping, and the interest rate monkey business, the stock market reaction is exactly OPPOSITE of what the Fed meddlers wanted.

Great. They ignore their 30+ year strategy of focusing on the economy, and start meddling to save the stock market.

And in the end they will end up tanking both the stock market and the economy.