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When Bush took office...
On Sun, 11 Nov 2007 15:05:18 GMT, "Canuck57"
wrote: "Wayne.B" wrote in message .. . On Sat, 10 Nov 2007 22:49:44 -0500, " JimH" ask wrote: Explain how the "Republicans" caused the increase in gasoline prices. That's easy: - The Iraq war - Huge federal defecits - Weak dollar - Poor energy policies - Huge trade imbalance They are all intertwined with high energy prices in various ways. Well put. And to pay for it the fed "created" too much money diluting the greenback. Supply and demand. Oversupply of currency and far too low interest rates generally mean lower value of the currency itself. But I think most of us didn't anticipate the size and speed of the devaluation of the USD. As this moves through the supply chain it is going to drive a mean kick on inflation and probably interest rates too. Sub-prime for example. Who wants risky debt, liquidity issues for an interest rate below inflation? But if they jumped rates to 12+% the cash would come. Rates are artificially low. That is why there is a crunch. Most people should think of paper currency just like stock. And devaluation depreciates the stock it is going to take more stock to buy the same other item as it did before. You feel it first with gasoline as inventories are short. The real value of oil has not changed that much in a year. The issue with the Fed and low interest rates is more complicated, dating back to the "dot.com" stock market bust and the desire to avoid a recession. The fact that rates were maintained too low for too long led to the real estate bubble and created the demand for sub prime, high risk lending. Yes, actually created the demand by stimulating the so called "carry trade". The carry trade is Wall Street's name for borrowing money at low interest in a venue like Japan, and investing it at high interest rates somewhere else. It's a can't lose proposition in a stable investment climate, limited only by your ability to borrow large amounts of money and safely reinvest it. Since Japan had virtually unlimited amounts of money to lend, the ability to reinvest was the primary limitation. Banks and other lending institutions in the US had already found it profitable to bundle up various kinds of debt obligations and resell them as bonds to institutional investors. They were percieved as low risk, high yield investments and were very popular. They were also very profitable for the banks who were packaging the loans and selling them off. There is only so much high quality debt available for repackaging however so that sparked the sub-prime high risk lending business to create more opportunities for selling bonds. Like all things the reality is even more complicated, but that is the one paragraph view from 30,000 feet. |
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