Dollar betters worry about Bernanke and inflation

With Federal Reserve Chairman Ben Bernanke cutting the federal funds rate to zero, has he increased the possibility of future inflation?

The Wall Street Journal’s editorial board said the continued sagging in the dollar’s value says yes.

Dollar stores show what’s wrong with economy

Imagine being promoted to an assistant manager at Dollar General, aka The Chinese Consulate, Retail Division, for the princely sum of $9 an hour. And, there’s the additional irony that Pam Fleck insists on driving not just an American-made car, but a Ford Taurus due to the high percentage of American-made parts, all while working at a place where, outside of foodstuffs, you’ll find it near impossible to find made-in-America items.

And, before she bought the Taurus, did Fleck check where her own small-price buys were made? Does she today? Or is it just with cars, since she is in Michigan?

Early markets ignore Bernanke to listen to Bernanke

Just after Big Ben Bernanke claimed our wonderful economy was in no danger of a substantial downturn, he, in pretty much the same breath, essentially shot himself in the foot by using his strongest language yet to warn about inflation.

Well, over in Asia, then in Europe they listened to the second Bernanke, and started dumping short-term Treasuries like toilet paper.

The Worst Fed Head Since Greenspan™ strikes again!

Bad jobs news looks to drive Dow below 12,000

The February jobless numbers are in, and they don’t look good. Employers cut 63,000 jobs last month, the second straight month of cuts, following an anemic increase in December.

Meanwhile, the Fed is putting more money up to auction to banks, indicating it thinks credit crunch problems are even worse than so far admitted.

Reflecting that? Credit insurer Ambac has hustled to scrape up more money, an additional $1.5 billion, to be precise, to try to save its own credit rating.

Result? Dow threatening to Meanwhile, the Fed is putting more money up drop below 12,000.

Senate Dems cave, or charitably, take quarter-loaf, on ‘stimulus’

Yes, they got help for senior citizens in the finally agreed upon version of an economic stimulus package. And they got additional tax rebates for disabled veterans.

But, besides caving on heating assistance for the poor, and tax breaks for alternative energy, they surrendered the demand for an extension of jobless benefits, which has always been a Democratic staple in previous recessions.

Oh, well, President Obama will either perform the miracle of Kumbaya or else will have such magnificent coattails he will get a cloture-proof 60-Democrat Senate.

Yeah, right.

More recession watch news: retail sales slump

January retail sales? Worst for that month, on a year-over-year basis, in almost four decades; company-by-company details at the link.

Meanwhile, the Atlanta Fed governor seems to indicate more rate cuts are in the offing, while the Philadelphia gov dampened that talk earlier this week, saying the Fed still has to keep its eye on inflation. One side or the other will have to give; I think Big Ben Bernanke will have at least one more cut by mid-year, thus proving he is Wall Street’s lackey and Bubble Boy Jr.

More recession-related news — service sector slumps

For the first time in almost five years the service sector contracted in January. The contraction appears strong enough to be of real concern. It was also way off the mark of Wall Street’s expected continued expansion. Overall, 14 of 17 service industries in the measurement index showed contraction.

The Street dropped more than 250 points this morning on the news; so far, and surprisingly, nobody has (yet) said, “We need another rate cut.”

More seriously, for people who still claim we’re not in the start of a recession, you m ight want to think again. The questions are still open as to length and depth, but the simple existence of one? Seems like that’s on the books.

Bet you didn’t know this about the “stimulus” — an apparent high-dollar housing bailout

The top dollar amount for a standard, or conforming, mortgage that can be purchased by quasi-federal agencies such as Fannie Mae or Freddie Mac, versus a “jumbo” mortgage, will increase from $417,000 to $730,000.

Lemme see, we’d be talking primarily about Florida and California here — high-dollar states with a once-booming housing market until their bubbles burst.

Lemme see No. 2… this is an election year, right?

A trifecta of economic bad news

Following yesterday’s European and Asian plunge, Wall Street dropped more than 300 points in its first hour of trading, to fall below the 12,000-point mark.

The Fed, in little more than panic mode, cut the funds rate not a half point, but three-quarters of a point.

As pointed out before by me and better people, the flip side is that this drives the dollar further into the tank, and, if the immediate problems of this recession are beyond Fed reach, risks causing some sort of stagflation.

The panic was reflected in finance stocks with housing exposure. Bank of America and Wachovia reported almost zero profit in last year’s fourth quarter.

Recession more likely — and around party convention time

Moody’s expects a nationwide housing price drop of 15 percent by 2010 and a California/Florida drop of as much as 30 percent, with full recovery not until 2010.

House prices are forecast to fall 13% from their peak through early 2009. After accounting for incentives home sellers are offering buyers, effective declines peak-to-trough will total well over 15%, the report said.

Punta Gorda, Fla., and Stockton, Calif,, are the hardest hit markets in the United States, with price declines from peak-to-trough forecast at 35.3% and 31.6%, respectively.

"This is the most severe housing recession since the post-World War II period," Moody’s Mark Zandi told Reuters.

Remember, the freeze doesn’t apply to already-delinquent homebuyers, nor does it apply to upside-down loans. And, at a 15 percent drop, not to mention 30 percent in California and Florida, many loans will be upside down.

As for a recession possibility?

The same Moody’s report says housing will knock 1.5 percentage points off economic growth next year, most of that by before the end off summer.

So, a recession — right around the Republican and Democratic national conventions. And, a “reset freeze” that’s like a Band-Aid on a horror flick chainsaw wound.