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You’ve been hearing and reading all the bad news about the credit industry and all the nasty things that its difficulties might mean to you, but is anyone considering the positive outcome that this major reset of the American economy could mean in the long run? Being that I’m a cynical optimist (an oxymoron, I know), I have a perspective on this mess which many people might not be thinking about.

I’ve been telling you since late 2006 that we’ve entered a world economic shake down and that the biggest hindrance to further growth in the American economy is the fact that the balance sheets of American corporations are full. I cite the sudden spate of major acquisitions in pursuit of profit creation via consolidation as support for my opinion. As modern economics are conventionally structured, the only basis for economic health is steady growth. That makes the case for the necessity of this period of down slide only too palpable.

If we as a nation can financially hold it together for the next couple of years and swallow the massive bitter pill of a recession, when we come out on the other side of this mess we shall reap the astounding rewards of the “green economy” which is now in the process of being built. This day we’re planting the seeds of America’s next economic boom and I’m sorry to report that most of the rest of the world has mistakenly adopted our old patterns.
Let China, India, the Russian says and the Middle Eastern block build their burgeoning industrial economies upon the fossil fuel era which is destined to become increasingly less profitable. As usual, they shall soon realize that they are two decades behind the economic flow. They’re making the single largest mistake that can be made in any competitive realm. They’re trying to keep up with us by doing what we’ve already done. They’re building their economies based on a set of consumerist fundamentals which are in decline, a fact we’re painfully learning and adapting to day by day.

For everything there is a season. That you must know. We’ve just entered an economic winter and it threatens to be a long, hard, cold one. Even now though, the rows are being planned for the next American economic garden to have it’s seed sown. Economic springtime might be a couple years away but when it comes, be ready to put your hands to the plow. This time of distress had to come because it’s the only way we’ll get ample room to grow again.

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For some reason I just am not in the 50 point cut camp like most folks are. As a matter of fact, as I speculated last week, I’m not even sure I think a 25 point cut will happen. Why? Today’s reports show the the current economic situation isn’t nearly as dire as people […]

For some reason I just am not in the 50 point cut camp like most folks are. As a matter of fact, as I speculated last week, I am not even sure I think a 25 point cut will happen.

Why? Today’s reports show the the current economic situation isn’t nearly as dire as people think.

Productivity in the nonfarm business sector increased at a 6.3% annual rate in Q3 the government said in its second estimate of productivity. A month ago, the government said productivity rose 4.9% annualized.

Unit labor costs, a key gauge of inflationary pressures from wages, were revised much lower, showing a 2% annual decline in the third quarter compared with a 0.2% drop estimated a month ago.

Unit labor costs in the second quarter were also revised much lower, from a 2.2% gain to a 1.1% decline, reflecting more up-to-date compensation information. The revised data show inflationary pressures from tight labor markets are much milder than previously believed.

Now this does give the Fed room to move rates lower and relieves the worry that inflation may spike. But, with the economy going at a healthy pace, are rate cut really even necessary?

Consider this day jobs report.

Private payrolls grew by 189,000 in November following a revised 119,000 gain in October an ADP report said today. The increase was well above expectations for job growth of only 60,000 in November.

Employed workers are spending workers. Now, much of the rate cut talk has been focused around mortgages. The easy explanation was that millions of resets of adjustable rate mortgages were coming and high rates woulds cause high resets and million of foreclosures. The argument was that lower rates would help mitigate that. Word today is that Treasury Secretary Hank Paulson is working on a deal to freeze resets for 5 years. If that happens, then we now know the scope of the problem out for the next 5 years. We can assume based n historical data what will happen in the mortgage markets with some degree of accuracy.

If we know the scope of the problem, the impetus to lower rates to stave off a catastrophe is now gone. With that being gone, we now go back to the old fashioned reason for rate cuts, growth vs inflation. Right now, both seem to be just fine and if they are just fine, is there really a reason to tinker with rates?

While I do not feel a cut is necessary, with the market 100% sure a 25 point cut is coming, I would assume Bernanke gives it to them if for no other reason that to avoid an end of years sell-off.

Should he give them 50, the only thing that would justify it would be an accompanying statement saying the Fed is essentially “done” unless things “dramatically deteriorate”. Either way, Tuesday will be one hell of a day

For more visit Source:www.straightstocks.com

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