July 16, 2008
With three more financial outlets collapsing under the economical meltdown last week, queues of angry people outside banks with no access to their money, inflation at its highest rate for 27 years and scores of economists predicting a recession may tip into a full blown depression, president Bush reacted by declaring that the economy is still fundamentally sound.
"I think the system basically is sound, I truly do," Bush said. "And I understand there’s a lot of nervousness. . . . But the economy is growing, productivity is high, trade is up, people are working. It’s not as good as we’d like, but . . . to the extent that we find weakness, we’ll move."
Bush joked that he had now heard of $4.00 per gallon gas, after he notoriously denied any knowledge of those forecasts in a press briefing in March.
A sound system seemingly encompasses one that has led to 27 year highs for inflation rates. A report released by the Labor Department today revealed that on a 12-month basis the producer price index soared 9.2 percent in June, the largest increase since June 1981.
The report also showed that consumer prices rose in June by the biggest amount since September 2005 in the aftermath of Hurricane Katrina, as gasoline prices surged. Prices were up 5 percent from a year ago, the biggest year-on-year rise since 1991.
Watch the Bush press conference:
Fed chairman Ben Bernanke responded by telling Congress that his outlook for better growth and cooling inflation remained subject to a "high degree of uncertainty."
The figures confirm what economists such as former World Bank head turned economic whistleblower Joseph Stiglitz have long predicted, we are in a sustained period of "stagflation".
As Gary Thayer, Chief economist at Wachovia Securities points out, "This increases concern that the Fed is not going to be able to lower interest rates if the economy remains weak. And as long as the economy remains weak, it will be hard for the Fed to raise rates to fight inflation."
Stiglitz has previously hit out at Bernanke, charging him with failing to counter the deterioration of the real-estate market by procrastinating over interest rate cuts.
Bernanke has also come under heavy criticism from Congressman Ron Paul who held the Fed head to task over his refusal to address the decline of the dollar and its clear link to inflation.
"Inflation comes from the unwise increase in the supply of money credit….to argue that we can continue to debase the currency, which is really the policy of that you’re following, purposely debasing value of currency – which to me seems so destructive….it just puts more pressure on the federal reserve to create capital out of thin air in order to stimulate the economy and usually that just goes into mal-investment," said Paul.
Americans are now witnessing the fallout from this destructive economic system that The Fed, the president and the White House still refer to as fundamentally sound.
No where has this been more evident than outside branches of failed IndyMac banks across America where furious customers have queued for hours in order to get access to their money, to no avail.
Some have even been threatened with arrest for becoming agitated.
This could herald the new image of America with news that “U.S. regulators are bracing for dozens of American banks to fail over the next year.”
According to an International Herald Tribune report, “Troubles are growing so rapidly at some small and midsize banks that as many as 150 out of the 7,500 banks nationwide could fail over the next 12 to 18 months.”
As Tribune economic reporter Peter S. Goodman has commented, we are seeing the unfolding of "A new American reality: The government as provider".
"In a country that holds itself up as a citadel of free enterprise, Washington has morphed from being the lender of last resort into effectively the only resort for home loans for millions of Americans engaged in the largest transactions of their lives." Goodman succinctly states.
Bush went on to blame Congressional democrats for the economic crisis and concluded with the rather telling statement "it’s been a difficult time… but we will come through this challenge stronger than ever before."
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