BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise...

BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? The firm's economic team put a $2 trillion price tag on the ultimate economic cost of the credit crunch, including $400 billion in losses directly tied to mortgages--well north of recent estimates by economists, including those at the Federal Reserve. In July, for example, Fed Chairman Ben Bernanke put subprime-related losses at $50 billion to $100 billion. 'Even at the time, these numbers seemed quite optimistic,' wrote Goldman (GS) economist Jan Hatzius, in a note Friday. 'Now it is clear to most observers that they are far too low.' Some have called on the Fed to do more to ease the credit crunch and restore the fixed-income markets to normal. But in a speech in New York on Friday, Fed Gov. Randall Kroszner said the central bank probably won't need to reduce interest rates further to help the economy. The first problem here is blaming the credit crunch for losses. That is a very poor way of looking at things. If $2 trillion is the answer, then what is the question? The real question is: 'How much damage did the Fed and central bankers worldwide do by spawning off the biggest credit boom in history?' Now that we have the proper question we can see that calling on the Fed to do more to ease the credit crunch cannot be the solution. The Fed caused the credit crunch by slashing interest rates to 1% to bail out its banking buddies in the wake of a dotcom bubble collapse. All the Fed did was create a bigger bubble. This bubble is so big in fact that it cannot even be bailed out. It's the end of the line for a serially bubble blowing Fed. Are we done with question and answer? No, not quite even though we now have the right question and possibly the right answer. The next logical question is 'Who is paying the price?' The answer is the poor to middle class. Wall Street made out like bandits and the of executives of Citigroup (C), Merrill Lynch(MER), Bear Stearns(BSC), Countrywide (CFC) made countless $billions. So not only was this the biggest credit bubble in history, this was also the biggest transfer of wealth from the poor and middle class to the already enormously wealthy. That is the real travesty of justice regardless of whether or not the price tag is $1 trillion, $2 trillion, or $10 trillion. And if you factor in rising property taxes, insurance, gasoline prices, etc, while real wages were sinking, even $10 trillion could be conservative by the time all is said and done. Whatever the figure is, Fed and Congress will be hellbent on reckless solutions that will do nothing but make matters worse. The content on this site is provided as general information only and should not be taken as investment advice. All site content, including advertisements, shall not be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of sponsors or firms affiliated with the author(s). The author may or may not have a position in any company or advertiser referenced above. Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.