The US Federal Reserve and the problem of 1981/2

By Iroabuchi Onwuka

Many markets and financial analysts are seriously suspect that the US feds are going to end the year at current rates, which might suggest that the Fed's attention is driven to hold back the weight of Bank's earning until early next year when the full effect of Obama's spending has fully taken place. The short drama in the past few months over the vote of confidence by Obama on Benanke, may have given analyst something to work with, that in the interest of Benanke playing on History as the saving strenght of America economy in times of crisis, Benanke will widen that power by a small interest rate raise to put the country seriously robust until when necessary. But this is not the case and probably won't be. Some analyst have said that a .25 interest rate this year by US federal Reserve will put the economy above 5%, a robust growth that seethes with resentment on the problem of inflation. Inflation in deed might harm the long term view of America Bond market forcing attention to be placed on the strong dollars. On the significant participle of foreign banks and IOU, strong dollars is necessary to handle the problem of inflation on the short term. A strong dollar policy will also keep oil prices in check against the expansionary view of the Americans economic policy. If 0.25 would have happened, American economy would be left with excess money in circulation which may offload as high crude oil price stemming from trade deficit over weak currency. But this may not be the case. If Benanke had gone that route before now, many people of course won't have noticed that the recovering growth of American economy is not fully charged. Above all, only few would seen that such interest rate raise would have slightly weaken American economy given the position of current successes as a false start. The play on trade was on Crude oil which some traders thought will ballon like last year given the might of Euro leading to the crash, but it was a quicker since others equally believed against the hype. In many ways, a strong dollar policy was only favorable idea in times like this.


But this is where the problem begins. The wound of world crisis is still fresh over the incidents of the financial debacle that rocked markets last year. The problem was finally figured out(as I have maintained) that attention ought to be placed on the dollars and not the Euro, and for us to get a better sense of the market it has to be based on the dollar and then the constituent member of that market. In a sense, the culture of money had to be directly equal to rising value-that the value of any market by any stretch is necessarily by will of a bench mark, like say the dollars of world order which form in many ways the point of the moving arrow. The only thing to remember is that the markets of the world are like a common arrow, where the rest of body are the constituent members, such that the whole of the world markets are necessarily part of that common and singular arrow shot from shaft with a particular direction. This is to be executed with right intention, with or without the view of necessarily hitting the Lady Luck, but non the less in consistent one direction non the less. This view I think is the whole philosophy of market systems. In many ways, there is such a thing as common markets, a sort of demand and supply within demand and supply out of which a better market emerges, and performance of that market allow us to financially speculate the rest. Of course it goes the other way too. It is also necessary to note that the market standard is necessarily the scale, rather the scales allow us to award the crown on the serving ruler. As such no similar such or alternative such crown is possible, unless it is a rebel group threatning the Monarch. But if the succeed...and however they succeed, we can at least strip the crown to proclaim 'long live the king'. The philosophy of one regnal market is the only way I think, we can explain the usefulness of US dollars and its position as the Benchmark of the world and heThe only difference is that this king/Queen is a self sacrificing king, who rules by the function of its services. And the pikes on that Crown are made of markets of the world all composing themselves as the world markets. If there is any attempt on the so-called Bench mark and this case US dollars, it will be a question of crash of the international markets. Europe beware. For that reason, whatever happens to the overall US market and the dollars, it might have a direct and indirect effect on the overall markets of the world. By that we can say that strong dollars as a position on the world will definitely yield poor pricing of the crude oil in the world As I mentioned early, when there is two common factors such a 'interest rate' decline and Crude oil decline we shall face the same problem we faced last year, since no significant stimulus for speculative finances are likely to exist.


To become an expert on the crisis of the Jimmy Carter era 78-82 era is to have written very seriously on the subjet and since I have not personal done any useful doctorate on the subject of 81/82 crisis of the world, I am not very convinced that enoug eyebrows would be raised on the approaching economic malaise of the world. But attention ought to be made on what happened to the world in 1981 and 82 when the interest rate was not in effect and when the US dollar was also a strong mold. A strong dollar mold seriously mean weak currencies of the oil rich economies, especially third world countries. The chain reaction of what happens when we have little or no effective interest rate in the world and short falls of crude oil price is that the world sankr into deep economic uncertainty. This was the case in 1982, at least in my current estimate. For a world still recovering from last yea's problems, there is need to be careful about staying to long on no interest rate and weak crude oil prices on the back of a strong dollar.



CAPM is called Capital price asset management. It concerns new ways of measuring what is happening in the world of asset pricing and value investing, which is significant in determining the range of business opportunity and inflation and may not take the role of other indicators in the market. If Robert H. Parks, Ph.D, Sam Nakagama, Gary Shilling are proved to be right, these co-incident indicators such as (1) income (2)production (3) sales (4) gross domestic product are not very great indicators, then we must not whole heartedly rely on what these things are telling us in today's inflationary tact, neither should too much emphasis be placed on the reversive index of Nikkon and Yen over the US bond market. More attention should be placed on the rest of the world, given especially the rise of the emerging markets in the world and what role they are likely to play in 2010 in the world-third world. In a sense, the support for strong dollars is helping for now, but the new year should look the part of increasing the U.S interest rate irrespective of the market data and we hang the hope that enough indicator can highlight the path of the raise and the very direction.


The fungible growth of US economy is a primary concern especially the very new and rigid invention of Government rules in financing, such rules may only serve to complicate the powers of Treasury which interfer with the market-an interference that is not due the Reserve. Yet attention on these very policy on the growth of the world market and its stability, should be the primary concern of the Obama's administration and the Federal Reserve.

Iroabuchi Onwuka