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Fed Has 10-Year Plan to Save Banks, But No Plan to Save Americans Devastated By Fallout, Admits Powell

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Is the Fed’s latest money funnel to unnamed trading houses on Wall Street part of the plan?

By Pam Martens and Russ Martens of Wall Street on Parade.

During his testimony to the Senate Banking Committee yesterday, Federal Reserve Chairman Jerome Powell let it slip out, for the first time, that the Federal Reserve has had a 10-year game plan to deal with the financial crisis. In response to a question on cyber threats from Senator Ben Sasse of Nebraska, Powell stated the following:

“They kind of pay us to be awake at night worrying about things. I would say that if you look at what happened in the financial crisis, we had a game plan there. We implemented it over the course of 10 years. I won’t say that it’s perfect or anything like that, but we have a plan that is meant to address those kinds of things.”

“Those kinds of things?” The financial crisis, fueled by corruption and lax regulation of Wall Street banks, destroyed the housing market in the U.S. and left the U.S. economy in tatters. Millions of Americans lost their jobs and their homes to foreclosure. The New York Fed was the supervisor of key Wall Street banks that caused this problem – shouldn’t it have had a 10-year game plan to prevent “Those kinds of things” instead of creating the game plan after the damage had been done?

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Happy Days Are Here Again?

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new-logo25Dan Martin

PPJ Staff Writer

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“Dow hits record high as markets are undaunted by tepid economic growth, political gridlock” (The Washington Post, March 5, 2013)

This is just an example of the headlines appearing in virtually every newspaper and on every newscast in001-1008100157-economy5 the country.

Feel better now?

Well, I hate to burst your bubble (that’s one of those highly technical economic terms bandied about by the talking heads), but let’s take a closer look at the numbers.

The common thread here is that all of these headlines trumpet a mindset that is pure horse (manure). (Editor’s note: The writer actually used a stronger epithet and, while we do not pretend to be rated G, there is always the outside chance the PPJG will be left lying about where a nine-year-old might find it.)

Anyone who respects the ‘time value of money’, also known as ‘inflation / deflation’, is conditioned to immediately suspect comparisons of dollar amounts between different time frames, and treat them with a huge dollop of skepticism.

THE REAL NUMBERS

The closing numbers for today (March 5, 2013) were $14,253.77 for the Dow and $3,224.13 for the NASDAQ.

The average annual inflation rate from 2000 to 2013 is 2.24%. The rate from 2007 to 2013 is 1.945% (see InflationData.com.)

Adjusted for inflation, the Dow Jones Industrial Average (DJIA) is $1,479.47, or 9.403% short of its all time high of $14,164.53 on October 9, 2007 ($15,733.24 in today’s dollar.)

The NASDAQ is even more woefully behind its March 10, 2000, record close of $5,048.62; ($6,751.24 after adjusting for inflation.) That would be $3,527.11 – short 52.244%.

WHAT DOES IT ALL MEAN!

Inflation is a basic characteristic of our economy. Those who wield some influence over these things strive to maintain the inflation rate between 0.5 and 1.5 percent as measured by the price index for personal consumption expenditures (the PCE price index).

Deflation is considered a problem in a modern economy because of the potential of a deflationary spiral and its association with the Great Depression.

The fact of inflation must be taken into account whenever and for whatever reason we are comparing the cost of things between two different time periods.

Obviously, we have a way to go.

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Dan Martin: procentral@mainstreetcom.com A semi-retired estate planner and tax preparer, determined to help people understand how numbers affect every day of their lives. Comments, questions, or clarifications are welcomed.

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