Tuesday June 15th

It truly is an interesting and amazing economic situation that we find ourselves in today.

Here we have an 'influential' Fed economist who indicates that we should have a negative Fed funds rate as result of the status of our economy! Yet the government continues to spend, create and borrow more money than was thought humanly possible which in 'normal' times would create an inflationary panic - thus pushing rates skyward. And add to this that as of late we have the 'deflation' word being tossed around again!

What is our true economic reality? (Maybe we need to come up with a reality TV show about our economy - it could combine the best of the Wheel of Fortune and Jeopardy....! ! !)

For such unusual times as these and with the continued volatility that has stirred the market's pots, the road to economic stability seems to be out of our reach. Continuing levels of high joblessness, volatile and unpredictable consumer spending, continued housing stress, weak manufacturing levels, global economic chaos - these are the variables that we are dealing with.

And what is the answer to our economic malaise? Well there are enough people out there telling us what they believe - from more government spending to freer, open markets and less taxes. From my perspective the answer is time, a return to conservative financial foundations and perseverance - but no one wants to hear that!

prb

Subject: S&Y PSG Morning Market Update for Tuesday June 15th
Date: Tue, 15 Jun 2010

A report published yesterday by Glenn Rudenbusch, the influential economist and director of research at the SF Fed, indicated that the Fed will not shift monetary policy anytime soon and will probably not raise interest rates until 2012.
The report indicated that that by some policy benchmarks or rules of thumb, the fed funds rates should theoretically be negative, -2.9% (current fed funds rate = 0.25%).
Obviously the fed funds rate can not be negative; however, the report suggests that the rate will be theoretically negative until late 2012. At that time, the Fed would then initiate the policy shift to tightening.