Federal Reserve Warns of Insolvency – Can a rise in interest rates be avoided – Scenario eerily similar to 1978-1979.

The end result of inflation in 1979 - gas lines and shortages, photo the razor.org

This week, CNBC reported that The Dallas Federal Reserve’s President, Richard Fisher , noted the U.S. is on the path to insolvency. In an interview at the University of Frankfurt, Fisher stated “The short-term negotiations are very important; I look at this as a tipping point." He went on to conclude that the Fed has other avenues available other than raising interest rates (which would enhance the inflation currently creeping upwards in commodities affecting food and fuel). A March 5th article at from the Los Angeles Times asks: “Is inflation wolf at the door?" - in response to Congressional Testimony by Federal Reserve Chairman Ben S. Bernanke, when Bernanke was queried about the rise in commodity prices he said: "The most likely outcome is that the recent rise in commodity prices will lead to, at most, a temporary and relatively modest increase in U.S. consumer price inflation," .

Recall, when the dollar dropped in the 1970’s, the Fed , in the face of a trade deficit and a Federal deficit, Carter and the Fed’s raised interest rates in order to “right” the economy. The Press Courier, September 12th. Interest Rates on used car loans were as high as 26%.

By the end of Carter’s term in 1979, Fed and administration policies had driven inflation up to an annualized 13.3%, or the “worst in 33 years. Spokane Daily Chronicle.

The Stimulus Programs, Increase in Entitlement Programs, the bailout of auto makers, increase in promises to Unions, and a subsequent budget of 30 Billion Dollars by January of 1979 (Wall Street Journal) combined over a period of time to devalue the dollar and drive up inflation. ($30 Billion adjusted for inflation (using 2009 as the stop gap) $87,507,668,383,160.)

What can be anticipated? Inflation on food and fuel will continue to rise though the balance of 2011, with a subsequent increase in unemployment. It is the trickle up effect of a rise in commodities to a rise in the cost of steak, vegetables, and even durable goods, that consumers can no longer afford, causing the trickle down effect of less spending at a retail level, fewer orders for durable goods (who needs a car when gas is $5 plus per gallon?), leading to subsequent layoffs and business closing.

What should happen? Granted the 1970’s are not ancient history, but history none the less, those who are in charge of the nation should at least study trends from “recent history”, to ignore failed policies and then repeat them, leads to misery.

Although some on the right may be seeking the elusive next "Ronald Reagan", it is apparent that person does not exist, look for the individual who is able to effectively govern and has a keen appreciation for business and has a grasp of recent history.