Rising inflation "is not a factor restraining the Fed at the moment," says James D. Hamilton, professor of economics at the University of California, San Diego. He says the Fed views the current situation as "maybe a little scarier than the typical downturn" because of problems in the credit markets that threaten to starve businesses of capital needed to fund expansion. [Emphasis mine.]
The last sentence says a lot. It says that businesses need to expand. I don't think they do. I don't think anything needs to expand. Isn't that how we learn to balance our first checkbook? Don't spend more than you have. Don't buy the new thing until you have the resources to acquire and subsequently maintain it. Why do credit markets need to expand, much less fund expansion? Don't they know they're playing a zero-sum game? Well, yes they do, and they win every time they play, which means consumers always lose.
Granted, anyone in business knows that penetrating a wider market or opening up new product lines is a good way to increase revenue. But is constant expansion a core goal for any business? If so, where among the priorities does it fit? At the top: expand at all costs? Or at the bottom: expand when it's economically and politically feasable, after all the other important goals have been achieved? Other goals might include affordable quality healhcare and better pay for employees, improvement of existing facilities, reducing existing operating costs, and reducing harmful impact on the environment.
You see, I believe a company, just like an individual, can remain highly profitable even when it's not expanding. And in fact, profit margins are wider when expansion is zero, because expansion requires lots of capital expenditure. So, in times of economic recession as we have now (despite the cries from some that we're not yet in a recession), why do businesses actually need to expand? It seems wiser to perhaps dig in, maximize revenue from existing streams, cut the fat from the equation, and sit comfortably while the rough water subsides.
It's a fallacy that to be better you must expand. But the Fed sees it differently, as do many. They see that consumers (you and I) are having a tough time making ends meet--what with unemployment at a high and new job growth slowing--so they tweak the rates and create a pleasant arificial sunrise for some and a blinding, oncoming train headlight for others, hoping that the situation will correct itself if they could just get more people to buy more stuff.
The buying of the stuff by comsumers drives the economy, I guess. Hence the drive for businesses to deliver "new" and "improved" and "faster" and "easier-to-use" products that aren't really better, they're just newer and by extension, somethig you don't have but which you "must get" in order to be cool or hip or otherwise as well-equipped as the Joneses. It really doesn't improve your lot by much, but it reduces the size of your cash reserves (or credit line) significantly. So the next step is to try and make more money (to get more stuff). Having money allows us to be good consumers and also to do our individual part to help pull the economy out of recession. (C'mon everyone! PULL! PULL!) So now consumers clamor for more money (so they can help the economy), but find out along the way that buying power, not mere money, is the real means to get stuff. And you don't have to have money to have buying power, you just need credit. And that's where the unraveling threads holding economic reality together can be found--amid the complexities of the mechanics of a credit-based (debt-based) economy. No longer is your money a factor (it's just a fiat paper currency after all--called a Federal Reserve Note); now it's how much debt you have versus how much credit you have. No one saves. No one plans. We just go about filling our lives with gadgets and gizmos, calorie-free nutrition, and fantastic loan products. No one even knows why we're here, so we assume it's to consume and multiply, and if possible, remain happy while doing it.
Expansion is not a good thing, necessarily. Too much population, too many calories, too many lungfulls of contamination and there is doom on the horizon. If we all just tried to maintain the status quo for a while, and maybe use the time to restructure some things in desperate need of fixing, we could possibly move toward a sustainable future. As it is now, we continue to walk along a narrowing balance beam, blindly striving to expand. We've become top-heavy, and no one wants to admit that the vanishing point is clearly on the horizon and we will all fall off eventually. Those who wisely stop progressing along the narrowing path in an effort to be sustainable at our current position will ultimately be bumped or bullied off the beam by those rushing to find the end of it--for there truly must be an economic opportunity to make even more money at the place where the width of the balancing beam becomes zero, a pot of gold I suppose (first ones there get to divvy it up!). But the real end result will be the rubble and shards of a system that should have abandoned greed and arbitrary expansion long ago.
So when the Fed says we have to adjust the rate because the credit brokers are losing money, it's like saying, "We should have kept slavery legal because now look: all the slave traders are having trouble feeding thier families."
A friend read this and sent me a link to the Story of Stuff. It's relevant and entertaining; I recommend it to everyone.