Who Knows What’s Next?

It’s a funny old economy that we live under. Sometimes to find out how it’s working you have to look at disparate reports, and then do a bunch of extrapolating. Here are a couple of stunning little pieces that I ran across yesterday.

The Federal Reserve and other central banks worldwide Wednesday announced a surprise plan to pump money into the global banking system to prevent a widespread credit crisis and an economic downturn.

It was the biggest coordinated action among central banks since after the Sept. 11 terrorist attacks. The move was greeted by an initial surge in stock prices and a drop in a key interest rate to which a wide range of lending is tied. Investors read the move as a sign central bankers were pulling out all the stops to thaw credit markets, which in some cases have seized up in the fallout from the U.S. subprime mortgage meltdown. […]

•The Fed will hold special auctions starting next week and lasting at least through January that will allow a wide range of banks to borrow directly from the central bank. The Fed will provide up to $40 billion in funds in next week’s auctions.

While the Fed lends to banks through its so-called discount window, banks have been reluctant to borrow from the Fed for fear of it being seen as a sign that they are having financial trouble. The auction system will provide greater anonymity.

The Bank of Canada, the Bank of England, the European Central Bank and the Swiss National Bank announced similar liquidity moves in concert with the Fed.

•The Fed also set up “swap lines” with the European Central Bank and the Swiss National Bank to provide $24 billion in dollars to be lent to foreign borrowers.

Not often noted was the claim that the 9-11 attack, because of the destruction to the World Trade Center, shaved one per cent off of planetary economic growth during the ensuing twelve months. Now we find world central banks coming together in a similar way, causing me to wonder just what size the economic problem were currently facing. And who can we declare a “war” on, as someone certainly seems to be worthy of blame.

The Commerce Department said Wednesday that the trade deficit rose to the highest level in three months in October, with record oil prices and a flood of toys and other imports from China swamping a solid gain in American exports.

A second report from the Labor Department showed prices of imported goods jumped 2.7 percent in November, the biggest increase in 17 years, though prices excluding petroleum rose just 0.7 percent.

The trade gap grew 1.2 percent, to $57.8 billion, higher than the $57.4 billion expected by economists. Imports, exports and the deficit with China were the biggest ever.

Yet just when we’re in the midst of what we consider to be terrible economic conditions, especially when factoring the drop in the dollar, we find that the rest of the world still wants to sell us everything that they can ship. Amazingly, even with a gigantic change in the value of our currency, goods are not only still flowing in our direction, but are still coming at what seems like fairly favorable prices. In other words, folks out there in the rest of the world are controlling the price of what they send us, in our favor, because keeping us buying seems to be the best way to keep themselves working.

With strange things like these happening, I’m not sure anyone knows where things go next.

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