Consider this: In 2000, when Bush took office, gold was $273 per ounce, oil was $22 per barrel and the euro was worth $.87 per dollar. Currently, gold is over $700 per ounce, oil is over $80 per barrel, and the euro is nearly $1.40 per dollar. If Bernanke cuts rates, were likely to see oil at $125 per barrel by next spring.
Inflation is soaring. The government statistics are thoroughly bogus. Gold, oil and the euro dont lie. According to economist Martin Feldstein, The falling dollar and rising food prices caused market-based consumer prices to rise by 4.6% in the most recent quarter. (WSJ)
Thats 18.4% per year---and yet, Bernanke is cutting interest rates and further fueling inflation?!?
Its crazy!
What about the American worker whose wages have stagnated for the last 6 years? Inflation is the same as a pay-cut for him. And how about the pensioner on a fixed income? Same thing. Inflation is just a hidden tax progressively eroding his standard of living. .
Bernankes rate cut may be boon to the cheap credit addicts on Wall Street, but its the death-knell for the average worker who is already struggling just to make ends meet.
Yup CR - I can't even get on the site to read the damn statement. Had to get the news through my investment news feeder. Pathetic. Like they still dont know to upgrade their site for these days. Oy.
The Fed gave in, and the markets are now "in control", or so they think. The dollar is now at risk of a full meltdown. Once that happens, the Fed can cut rates all it wants, but without foreigners buying U.S. assets, the entire economy is at risk.
this morning i watched as marc faber on bloomberg implicitly compared the us dollar to the zimbabwe dollar.
with steps like this being taken 4% off the all-time high in the s&p, i'm not sure how he could fail to be wrong in the end. it's stunning to realize how addicted we are to monetary expansion.
My guess is they are scared to death at what cratering home prices would do for our consumer based economy. But sorry- that ship has sailed. .5 won't do any more to stop the fall than all the past increases did to stop the rise. Or maybe they want inflation to come and save screwed borrowers that way.
Release Date: September 18, 2007
For immediate release
The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 4-3/4 percent.
Economic growth was moderate during the first half of the year, but the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally. Todays action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time.
Readings on core inflation have improved modestly this year. However, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.
Developments in financial markets since the Committees last regular meeting have increased the uncertainty surrounding the economic outlook. The Committee will continue to assess the effects of these and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Charles L. Evans; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; William Poole; Eric Rosengren; and Kevin M. Warsh.
In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 5-1/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Cleveland, St. Louis, Minneapolis, Kansas City, and San Francisco.
i can't speak for anyone, steve, but imho demand-driven inflation isn't the concern -- reckless monetary and credit expansion is. i fully expect demand to drop. but oil can keep right on going in spite of a decline in demand if the currency its priced in is being debased.
Maybe CR & Tanta can be the first to interview the new defacto head of the Fed, Jim Cramer, and ask him what it has been like to pull of his coup d'etat.
Can you imagine how many phone calls he is going to get today from his Street buddies ? He will be preening tonight, as he should. All those guys are Masters of the Universe, after all.
I'm a big Faber fan and totally see why the US$ should be toast but maybe there is a chance a lot/most of the kicking is already in the price. I don't know...just arguing. The $ has taken a serious beating over the last few years and currency markets tend to swing way too far to one side at any given time.
yup I'm now convinced they're going to try and inflate away the debt away.
to be honest, it makes me want to go out and run my credit up to the limit. anything i borrow today, i will have the luxury of paying back in greenbacks worth a fraction of what i borrowed.
What good is a 50 point cut? I mean if they did 25 and things really went to shit credit market wise you could do another 25 next week and say they'd cut more as needed.
This is just a green light to all the crazy ass speculators in the world that the fed does indeed have your back.
Lloyd: I bet not. And "bet" is all anyone can honestly do, given the Pandora's Box of today's big cut AND all else that has happened.
But if you would believe, as I do, that currency and equities traders had equally priced in Fed expectations, don't look down, as Indiana Jones might say.
Stock market may go up, but it sure as fuck won't stay there. People are tapped out and the building jobs aren't going to come back in a snap. Lending will tighten regardless. We may get a new bubble, but nothing employs as many or drives sales as much as housing.
I think 50 bps was right on target. I am a little surprised the statement didn't mention possible weakness in the labor market. Though, we it says monitor these developments closely, I expect that it means that after Sep and Oct NFP we can expect another cut.
In the short-term it's because of interest rate differentials. In the long-term, it's not.
The dollar fell dramatically in the wake of the last round of rate cuts and still continues to fall. So recent history, at least, doesn't support this claim.
The 50bps cut is just the beginning. I'd like to repost the link to Ben's speach which earned him the moniker, "Helicopter Ben". Please re-read and this time take it to heart. That is if you value your wealth and want it to maintain any value.
Remarks by Governor Ben S. Bernanke
Before the National Economists Club, Washington, D.C.
November 21, 2002
Deflation: Making Sure "It" Doesn't Happen Here
"How is the dollar debased by lowering the fed rate?"
Here are the basic stylised facts -
Imagine you had $100. You could invest it at 5% in the US or 5% in Germany. Now US interest rates fall to 4.5%. It would be smart to invest the money overseas. Since German banks take Euros, you buy Euros and invest them in Germany. If lots of people do this, there are lots of dollars sold and lots of Euros bought. Less demand for dollars = falling dollar. More demand for Euros = rising Euro.
All, I think the biggest surprise is that people on CNBC are surprised. The market expectations were a coin flip between 25bps and 50bps. So there was no real surprise.
It will be interesting to watch long rates (and the Libor) over the next few days and weeks.
someone please correct me if I'm wrong but I thought I read that he BoJ has NEVER raised rates when the Fed is cutting (or at least over the last 20 years or so). BoJ is on hold now that they are slipping into a recession as well and domestic subprime lenders are filing ch 11 over there.
The dollar fell dramatically in the wake of the last round of rate cuts and still continues to fall. So recent history, at least, doesn't support this claim.
Recent history absolutely supports this claim. Go look at the numbers.
When the Fed was raising rates and the Eurozone was stuck in the 2% range, the dollar rallied and did very well against the Euro. It was only until the Fed reached the end of its tightening cycle and the ECB began to hike rates that the dollar weakness reasserted itself.
Time to seriously abandon the dollar. I've already shifted a significant portion of my porfolio out of the USD; I'm about to cut the remaining portion in half.
The only thing I'm happy about is that we've screwed the Chinese.
All, I think the biggest surprise is that people on CNBC are surprised. The market expectations were a coin flip between 25bps and 50bps. So there was no real surprise.
It will be interesting to watch long rates (and the Libor) over the next few days and weeks.
I think oil prices also bear watching. So far they're up significantly - no suprise really. A surge in oil prices and long rates I think could effectively undo any benefit of lower short rates.
It's possible that the Fed knows things are much worse than most people realize, but if this is in effect a "Bernanke Put" then we could be in very serious trouble. FWIW the "Greenspan Put" didn't occur during a period of domestic economic troubles, so maybe the action is justified, but I think there's a real danger of a "terminal melt-up" in equities and commodities leading to a Depression style event.
In either case I now have to seriously reconsider weather it's wise to hold dollars.
Well, I for one can't understand Wall Street- to get more drops in the fed rate they should be selling rapidly. Of course, somebody is taking their profits as the people buy this blast higher.
Well, now on to move my fixed debt down to even lower rates to provide more money in my pocket. I think this might just keep housing from a utter crater- more "soft" landing attempts.
As for the carry trade- today and tomorrow provide a magnificent opportunity to get out with profits. That Yen should start rising again and the metals markets are smelling real inflation on the horizon. Opec doesn't care, because they will just keep raising the price of crude.
Long term this will be quite bad, but then in the long run we are all dead.
So it has come to this ... we are so consumption dependent in this economy that a recession can no longer be tolerated by the panjandrums in DC, who more and more resemble some Soviet-era apparatchniks out of a long forgotten history lesson. Bernanke and his limousine riding cronies have shown their hand, and it doesn't look like to me like a strong one.
We'll see if they even accomplish their short term goal of preventing a recession. My take is that this action will in the long run prove impotent.
Plus they've now used two bullets; they may regret this later.
Thanks rcyran and Steve. So I guess this means you have to buy dollars cheaper than other curriences to get the same rate of absolute return as the higher foreign interest rates. Sounds like Joe 6-Pack just got really screwed.
It was indeed a coin flip but I'm still surprised.
I only hope that after the dust settles (around 2010), monetarism would be a dirty word and societies would realize that money is too serious stuff to be left for central bankers.
Why are they counting the granite? No one will tell me!! aaargggnooooo!
Anyhoo, I'm guessing we are in one hell of an insolvency crisis.. I was dumbly convinced Bernanke wouldn't cut the rate like this.. so I have to rationalize my mistake somehow.
Dollar's not crumbling just yet; Bernanke and crowd no doubt took out some sort of insurance in advance.
But one more shock to the economy, or the dollar, might do it. I predict it'll happen in several months, after the nation as a whole has been convinced that things have "calmed down" for good. Could be the economy tanking, Bush going all Biblical on Iran, or just one too many interest rate hikes. Ultimately, there's no doubt that they'll pick at the dollar until it bleeds.
Assuming the FOMC is not batshit insane they must be really scared and believe that no matter what they do things are going down. Assuming this is the case,and they see rate cuts as having a lag before taking effect they probably cut the rate to get ahead of it(or even with it).
Having said all that....I still think it's the wrong move. This country needs some pain to clean out the shitty capital allocation, restore the industrial base, re-instate taxes where there are supposed to be taxes, and lastly CLEAN OUT THE SPECULATION and get back to actual INVESTING.
Hmm this could be an ingenious ploy to get the Chinese to abandon their peg, it's kind of like life guard training, when a drowning man latches on to you and won't let go you dive down deeper and deeper until they freak and swim for the surface...
That TOTALLY makes sense! Ok so no problem here, move along.
Being a bear is like being an environmentalist, you can tell people we're fucked in the long run all you want. But they can't look away from the Hummer ad on TV long enough to listen.
CNBC, Bloomberg, etc...and their parade of experts manipulating public opinion and attempting to influence policy are eerily similar to Fox News and the "War on Terror". I suspect the results will be the same...
Zandi was overly optimistic a year ago. And now he's overly pessimistic:
"We have a very soft economy and if the Fed doesn't lower rates then the economy could fall into a recession," said Mark Zandi, chief economist at Economy.com.
Could he have a conflict of interest if some of his corporate clients stand to benefit from a bail out (in the form of lowered short-term interest rates)? I'm not happy that the Fed has bowed to pressure from the whiners at Wall Street (and their consultants, like Zandi).
I remember now that Economy.com was purchased by Moody's some time back. Moody's is responsible for giving AAA ratings to MBS (essentially junk), that many pension funds, and other institutional investors, ended up buying. It turned out that Moody's, like S&P, had a tremendous incentive to give prime ratings to junk bonds.
And now Mark joins the chorus of whiners asking for (and getting!) a bailout. Disgusting.
I'm not an economist so maybe somebody could poke some holes in this line of thought:
The US has a very strong economy, even excluding the paper magic from the RE bubble. Stronger than anyone else's at this current moment. The problem is that we're up past our eyeballs in debt and can't break the average consumers' voracious appetite for imports, so we've got no way out unless we say that we're just not gonna pay. Of course that wouldn't fly.
However every other major economy out there owns our debt. If the dollar crashes, and I mean REALLY crashes (we're talking wipe our asses with 50's) Then our debt becomes worthless and our consumers are forced to buy US, because they can't buy anywhere else. The US enters a depression and literally takes the rest of the world with it.
Wouldn't the US economy recover faster, considering our consumers would be spending in house and not in the rest of the world?
The only hitch would be foreign companies possibly buying up US assets at firesale prices, but then our xenophobic congress has proven hesitant to allow such transactions in the past.
I dunno... is a potential global depression national suicide or the US finally trading in our checkers board to play chess with the rest of the super economies?
I know people are going to giggle and snicker when I ask this question, but here goes:
How is the dollar debased by lowering the fed rate?
Colin | 09.18.07 - 2:43 pm | #
If they're willing to lend at a lower interest rate, it's because the underlying asset isn't worth the investment at the higher rate. It's just like getting a sub-prime loan on a falsely inflated piece of real estate, or maybe the creative financing schemes used by Detroit. It's Dollar Daze!
Lag time for rate cuts to hit real economy vs. the near month futures contract anyone? anyone? Buehler?
If I remember my intro econ - it takes something like six months for the cuts to effect the 'real economy' and more like 18 months for the full effect to be felt (and by then dissipating as cuts/increases are temporary effects).
Again somebody feel free to correct me if I'm wrong.
But my guess since the credit markets were so constipated it will kick in faster. Just getting the deals moving will juice the system a lot. Considering existing 'real' inflation - probably way too much.
My guess is some of the hung deals will now move however.
The Federal Reserve gave into the desires of the Street and Capital Hill and cut both the discount rate and the fed funds by 50 basis points. This puts Fed funds at 4.75%, and the discount rate at 5.25%. Below is the current policy statement along with the previous statement and my take on the differences, paragraph by paragraph.
The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 4-3/4 percent. (today)
The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent. (8/7)
This is self explainitory.
Economic growth was moderate during the first half of the year, but the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally. Todays action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time. (Today)
Economic growth was moderate during the first half of the year. Financial markets have been volatile in recent weeks, credit conditions have become tighter for some households and businesses, and the housing correction is ongoing. Nevertheless, the economy seems likely to continue to expand at a moderate pace over coming quarters, supported by solid growth in employment and incomes and a robust global economy. (8/7)
The assessment of the past remains the same. At the August 7th meeting the Fed was confidant that we would have moderate growth for the rest of the year and into 2008. Now it hopes that this action will be enough to keep the economy from going off the rails. While it looks like the previous cut in the discount rate on August 17th did manage to get the gears of the credit market unstuck, the Fed feels that more lubrication is needed to prevent another seize up. So far it does not appear that the problems in the financial economy has spilled over significantly into the real economy. The Fed wants to take no chances of that happening. There has also been significant political pressure on the Fed to ease up, from both ends of Pennsylvania Ave. Hedge funds (political donors) were hurting and the Fed had to help! Politically, lower interest rates always look good, even if they are not in the long term interests of the economy or the country. (me)
continued:
Readings on core inflation have improved modestly this year. However, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully. (Today)
Readings on core inflation have improved modestly in recent months. However, a sustained moderation in inflation pressures has yet to be convincingly demonstrated. Moreover, the high level of resource utilization has the potential to sustain those pressures. (8/7)
This is a much more dovish tone. Notice the lack of mention of high levels of resource utilization. Has spare capacity grown significantly over the last six weeks? No. Have the last six weeks offered any real evidence of a sustained moderation in inflation pressures? Well, we had some good news on the headline PPI this morning, but with oil pushing $81, a record nominal high, it is obvious that that good news will be reversed in the Sept numbers. Gold is at levels we have not seen since the days of the Hunt Brothers trying to corner the silver market. The dollar is at its lowest level in decades. None of that seems to be convincing evidence that inflation has been totally tamed. (my take)
Developments in financial markets since the Committees last regular meeting have increased the uncertainty surrounding the economic outlook. The Committee will continue to assess the effects of these and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth. (today)
Although the downside risks to growth have increased somewhat, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the outlook for both inflation and economic growth, as implied by incoming information. (8/7)
Inflation fighting has fallen far down the list of Fed priorities. This very much leaves the door open to further rate cuts in the future. The street has gotten what it wished for, but then again the street should be careful what it wishes for. The Feds credibility as an effective bulwark against inflation has just taken a body blow. The kids were whining badly and Daddy Fed just gave in and let them have all the candy they wanted. Later the market may regret it as inflation rots away its teeth. The other interpretation is that the Fed was very scared about the possibility of a huge unwinding of the Financial system. (my take)
If you're a bank you can borrow short cheap and lend long for a great profit when the ten year rate goes up in response to a lowered FFR. They can party hearty. Just buy some CDS to cover their behinds and rake in the spread.
Bernanke is a terrible disappointment, like King at the B of E.
1590 SAT the good Dr. scored, so he's darn smart. But, I just do not see it, the rationale for a cut. It is just making a bigger mess to clean up later.
Bernanke channels Greenspan and thinks bubbles are the way out of previous bubbles. Like an alcoholic who thinks more drinks will do away with the hangover.
that is all financial - not the real deal with additional investment in say, mid-western manufacturing!
Ya if the dollar tanks midwestern mfg will do well in a Soviet Bloc sort of a way... We'll all be working but for 'less'. Poszi and Broker will know the joke updated for modern readers...
"They pretend to pay us (in dollars) and we pretend to work."
The point is they had a choice between driving off an inflation cliff or having a head-on credit crunch and they took the cliff. So now all we can do is take in the view and enjoy the ride.
IMPORTANT:Due to technical difficulties Gold pricing being displayed is incorrect. We will not be able to honor any orders at this time. We are currently working on the issue and anticipate resolution shortly. We apologize for the inconvenience and appreciate your patience.
I have always mantained that the Fed does not give a damn about inflation.
What the Fed care about is WAGE INFLATION.
The Fed job is to keep economy growing without too much wage hike.
Now, the Fed knows that wages will not be going up so it is free to cut.
Notice how "resource utilization" (euphamism for workers asking for a raise) have disparead:
Readings on core inflation have improved modestly this year. However, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully. (Today)
Readings on core inflation have improved modestly in recent months. However, a sustained moderation in inflation pressures has yet to be convincingly demonstrated. Moreover, the high level of resource utilization has the potential to sustain those pressures. (8/7)
Everyone is saying this won't help sub-prime borrowers at all... by extension then subprime lenders and firms that were burned by ARMs in general are still screwed... no?
A REO is a REO no matter what brand of crack Ben is smoking this week.
The Fed did the right thing today by cutting the Fed Funds rate by 50bps rather than the 25bps that most market participants were expecting. The liquidity and credit crunch in the financial markets is still serious and the downside risks of a hard landing (recession) are now large enough that doing 50bps was the minimum necessary to try to prevent a hard landing. In my view this is still too little too late
Seeing that the Fed came into is's own under the Roosevelt administration saying they always existed to suppress worker wages seemes a bit much. The last 30 years you might have a case, but making an "always" statement doesn't seem defensible.
However every other major economy out there owns our debt. If the dollar crashes, and I mean REALLY crashes (we're talking wipe our asses with 50's) Then our debt becomes worthless and our consumers are forced to buy US, because they can't buy anywhere else. The US enters a depression and literally takes the rest of the world with it.
We would not be "wipping our asses with 50s" though the rest of the world might. Unless there is truly unpresidented inflation here in the US dollars will still remain valuable to us.
However, yes a collapsing dollar would fire up domestic manufacturing but crush China.
Its not completely clear that a collapsing dollar would send the US into a recession because
1) Despite the fact that we buy a lot from abroad not too much is otherwise unavailable. The most important import is oil and its price is likely to fall if China's economy collapses.
2) US exports to would improve as long as the global slowdown wasn't too severe.
The biggest shock to a collapsing dollar would be the potential for skyrocketing long term interest rates. However, even that is not clear. If China's stock of treasuries collapses in value tomorrow, the last thing they might want to do is unload them at firesale prices.
Just this morning some wit snuck onto NPR news that annualized inflation rate in Zimbabwe is down to about 6600 percent this month, which is about a 15 percent decrease from its high point.
US exports of WHAT? We can only sell so much corn and scrap paper. The industrial base in much of the country is gone. People aren't going to build new US Steel sized factories just b/c the dollar has been in the tank for a year or two.
I just applied for 4 yes 4 credit cards, and got approval for all 4, when they arrive I am maxing the shit out of all of them..yup I am truly going to do it.
1) Despite the fact that we buy a lot from abroad not too much is otherwise unavailable. The most important import is oil and its price is likely to fall if China's economy collapses.
Only if the fall in global (Chinese) activity is greater than the fall in the dollar. Otherwise it is entirely possible to see oil go up IN DOLLARS as global consumption in BARRELS goes down.
That is the very essence of 'stagflation'.
The key measure will be if the price goes down in EUROS per bbl. My guess is it might even as it goes up in dollars...
That is unless the ECB steps into to mortally wound the euro too... currency MAD isn't out of the question.
Commercial and mortgage interest rates are being driven by the marketplace -- Fed has little influence here any longer -- they are pushing on a string. Fed lowering interest rates will have little affect anywhere except maybe on agency conforming loans, which aren't helping anyone now anyway. Get ready for a huge Equities crash after the the initial euphoria. This move guarantees a recession, and faster now than ever. Carry trade will explode on yen appreciation, forex will be in complete disarray now -- going to see some fireworks in the hedge fund arena for sure. Watch how fast foreign CBs and private buyers of US debt exit stage left with high risk and low rates. Interbank lending isn't going to feel a sudden rush of lending confidence over this. Look for US banks in need of cash to continue to have to offer high rates on CDs in order to cover their CP. Interest rates everywhere may well GO UP.
Everyone is saying this won't help sub-prime borrowers at all... by extension then subprime lenders and firms that were burned by ARMs in general are still screwed... no?
I'm sure some of my betters could say more and with numbers, but two points: 1) A lot of the worst of the worst loans are indexed to libor, so that index would have to follow suit. 2) The problem that the borrowers ran into in the first place was falling prices, which kept them from being able to refi out of scheduled payment resets. If the reset index does fall, that still is only going to help some marginal borrowers, and therefore won't ease the credit problem at lenders that much I would think, because prices are still falling (unless the RE version of the ppt gets out there and churns some local housing markets, of course, a move which is now cheaper).
"US exports of WHAT? We can only sell so much corn and scrap paper. The industrial base in much of the country is gone. People aren't going to build new US Steel sized factories just b/c the dollar has been in the tank for a year or two."
In other news, the rate cut sure is going to help the housing market. If by helping you mean to force more people into short-term type thinking potentially dangerous adjustable rate mortgages that is.
The rate on the 30 year fixed mortgages may just follow the yield on the 30 year treasury bond (and that was up today).
House approves bill aiding mortgage borrowers.
The House passed a bill on Tuesday that lowers down payments for borrowers, raises loan limits and boosts funds for housing counseling. Passed by a vote of 348 to 72, the bill reforms the Federal Housing Administration and is the latest lifeline thrown to borrowers from Washington as the fallout in the subprime-mortgage market continues. It also directs up to $300 million a year into an affordable housing fund. The Senate Banking Committee is scheduled to begin work on its version of the bill on Wednesday.
Don't worry. The private credit creation process is currently frozen stiff. Unless it gets thawed and well-greased, the rate cut policy on its own won't generate much inflationary pressure.
Meanwhile, the inflationary threat is likely to come from the lower US dollar and more expensive imports.
In the long-run, foreign investors are much less willing to hold US and dollar-based assets. This unwinding of the capital globalization is likely to be very, very painful for the debt-laden economy.
Do you plan on paying off those credit cards with a wage increase?
In all honesty I am Debt free and living within my means or years...but after this..why bother...I just might not pay them back at all...Prudent gets you no where obviously.
How will a cut in Fed interest rates revive credit markets when the real question in the credit market is whether the instruments being sold have value (and what is the actual value?)
The rate cut says that the Fed has grossly underestimated the speed and severity of the problem.
Remember "CALAMITY" Poole?
Does this mean this is a calamity?
Now doesn't this rate cut restore your confidence?
maybe Bernanke is cramers bitch...maybe...but not so fast. it could be that the lower interest rate is the "breather" the CBs and others need to unwind the derivatives time bomb. The clock is ticking...and when the blast zone has been cleared... helicopter Ben will turn into Volker...maybe.
I think the majority here are one cycle too many ahead of the pack ----
I think a hard landing ie recession is coming, and the US will take down the world. thus the interest rate differential is max right now with the US at the lead. But once the rest of the world catches the flu, other rates will come down and the dollar will strengthen (relatively) I bet gold will also correct during the slowdown (Marc Faber believes this as well)
It is in the next growth cycle that all the issues of the fiat currency regime are going to come home to roost, and runaway inflation is likely until real interest rates climb to the peaks of previous decades.
But the destruction will be MORE in US/UK than ROW, and so the next cycle up will favor Asia...
I'd welcome someone pointing out what's wrong with this thinking.
"Do you plan on paying off those credit cards with a wage increase?"
fjr,
nahh.. he can just roll the debt over into another set of cards with higher balances.. since he'll have such good credit for making minimum payments to the 0%APR ones.
I'm going on a consumption strike. Buying used rather than new, discount vs. retail, nothing but the bare necessities for me and my family for the next few months.
Well, one effect is for sure. This is going to make domestic inflation really boom in China. They are already struggling with it. That peg is going to be VERY hard to live with. They are going to very quickly be facing a stark choice - revalue or face domestic unrest and rampant inflation.
The rest of the BRIC's may soon start having a fun time of it also.
Can you give us an ubbernerd expalanation of the FFR process mechanics and how that "cheap" money gets dessimenated to 'help' the economy. I have been serching for a no BS explanation so I could get past the 'fed speak' but i have not been able to find one. I know its a tall order maybe you could break it up into segmented posts.
Thanks of all the great info keep up the good work.
Glad I'm not the only one who raised an eyebrow at USPS "forever" stamps. I can see clearly now that their issue was a brilliant one-liner in the tax-cutting, rate-cutting, spendthrift Bush Follies.
Today's cuts can be interpreted as Bernanke = Greenspan Redux, or as a one-time reaction to a one-time event, to be followed by a return to data-watching.
I think that the consensus for today's cut emerged only because there is also a consensus on the need for a return to data-watching. In fact, without the latter, I doubt today's 50/50 cuts would have been possible.
In any case, the Fed reaction was warranted -- a lot of systemic but not visible damage has been done but not recorded. More importantly, we still face a period of (enforced) deleveraging, which means that prices of many (investable) items will fall, even though rates are lower.
This joke about us pretending to work and them pretending to pay was rather about terrible productivity of these nightmarish times than the value of the currency but in fact unemployment was 0% and the average wage was 1$ per day. Prosperity, indeed.
I thought Bernanke would not cave in and give a cautious 25bps decrease but now I'm angry I was so naive. Although I managed to diversify and have only 30% of my portfolio is in dollar denominated assets, I feel it's still too much. I don't trust ECB, either. I'm not even sure euro survives the next few years but it's still probably a better bet than USD.
I sometimes think the only way for Americans to learn that inflation is bad is to experience hyperinflation. Or better hyperinflationary depression to teach them that inflation is not a cure for depressions. Apparently international evidence is not sufficient for them.
To the comments by MIKE WHITNEY posted by Borkafatty, I'd like to add a suggestion to also look at the prices of grains and industrial metals, both in 2001 when the last monetary easing cycle started and today.
I do not doubt that Ron Paul is mostly in gold. I think his head exploded because he knows that most of Americans are not and they have no idea what todays Fed decision even means, except for the DOW UP UP UP!
Marcus Aurelius:
No, nothing wrong here. The Fed will inflate the money supply aka print dollars. That will reduce the real burden of debt, thus encouraging further consumption. It will also tend to increase corporate earnings. (Measured in devalued dollars, of course. I mean, devalued against anything that cannot be printed: gold, oil, grains, industrial metals, etc.) Higher future earnings mean higher stock prices.
Markets up, oil up, Euro & Pound up; how does this help roll over CP? How does this help unwind leverage? How does this help those who are upsde down on their house.
How does this even oten the pain?
I hope helicopter Ben got more than 7 pieces of silver.
Imagine this situation: You have a friend who spends money like it is going out of fashion. All he does is buy things or invests them in crazy schemes. But in order to fund his spendthrift ways he needs to borrow money from his family and from friends like you.
One day your friend comes up to you. He is in a parlous state. He has lost all his money on failed investments. He owes so much money that some of his belongings have been repossessed already.
You shake your head at his story but you can't help but feel as though your friend is entirely to blame for his situation. You knew the warning signs were there and you're miffed at the fact that the ten thousand dollars he owes you may never come back.
You also know what he should do. He should cut his spending and live more frugally. He should divert most if not all of his remaining income into paying off his debt. You know that this process will be hard for him, but before you can say anything he asks you: "So, are you going to lend me money to cover my costs? Come ON man!".
What would you do?
By the time you read this, Ben Bernanke may have publicly announced a cut in official interest rates. To me, this is the complete opposite of what should happen. If you haven't worked out my anecdote already, the spendthrift friend is the market, who is reeling from the Subprime meltdown. You, of course, represent the Federal Reserve bank.
I'm a great believer that economics is actually simpler than what most folks think. I believe that the anecdote I have shared is true both in its micro and macro form - the best way to make people treat their money properly is by treating it seriously. This is as true for the poverty-stricken underemployed worker in Michigan as it is for the Wall Street stockbrokers who command eight figure salaries.
To cut interest rates would, in this case, be the same as lending your spendthrift and near-bankrupt friend more money. The Subprime meltdown, which is likely to plunge America and much of the world into recession, is a result of market failure. Easy money and easy credit have distorted the market's ability to spend and invest wisely.
But the market is, of course, demanding that Bernanke cut rates. "Come ON man!" they are saying to him "we'll be ruined if you don't cough up!".
It seems to me that the market's argument is that the cause of the problem is its solution. If easy money and easy credit have caused the market to go haywire, then the solution is more easy money and more easy credit. To me, this makes as much sense as a heroin addict arguing that the best way for him to get off drugs is to have another hit of heroin.
But in the anecdote you have the chance to say to your friend "No! I am not going to help you in this. The best thing for you to do is stop spend
wow
Asset bubbles 1
Inflation 0
I guess today will mark the beginning of the new bubble.
Whoa. Okay CR - what is this going to mean in layman's terms?
Bye bye dollar. Euro $1.3912 and climbing.
guess i should be changing my overseas travel plans.
Someone please tell me I fell asleep and woke up on April 1.
Agricultural commoditie here I come
And the US dollar tanks.
go for gold, dollar is dead
The BAR IS OPEN!!! DRINKS ARE ON THE HOUSE!!!
Consider this: In 2000, when Bush took office, gold was $273 per ounce, oil was $22 per barrel and the euro was worth $.87 per dollar. Currently, gold is over $700 per ounce, oil is over $80 per barrel, and the euro is nearly $1.40 per dollar. If Bernanke cuts rates, were likely to see oil at $125 per barrel by next spring.
Inflation is soaring. The government statistics are thoroughly bogus. Gold, oil and the euro dont lie. According to economist Martin Feldstein, The falling dollar and rising food prices caused market-based consumer prices to rise by 4.6% in the most recent quarter. (WSJ)
Thats 18.4% per year---and yet, Bernanke is cutting interest rates and further fueling inflation?!?
Its crazy!
What about the American worker whose wages have stagnated for the last 6 years? Inflation is the same as a pay-cut for him. And how about the pensioner on a fixed income? Same thing. Inflation is just a hidden tax progressively eroding his standard of living. .
Bernankes rate cut may be boon to the cheap credit addicts on Wall Street, but its the death-knell for the average worker who is already struggling just to make ends meet.
So much for taking the away the punch bowl.
So gold should did for a day or two and then take off right?
CNN.com has the huge red breaking news banner out, pronouncing a glorious new consumer debt feast.
The FOMC site is swamped! ROFLOL.
You have to be kidding me... I mean Jesus.
Oh and Orlando... WTF?
This really helps all those libor ARM resets.
Prepare for the backfire....3, 2, 1...
Mission Accomplished!! Now put the puppet back in the box.
Bye bye dollar.
Yup CR - I can't even get on the site to read the damn statement. Had to get the news through my investment news feeder. Pathetic. Like they still dont know to upgrade their site for these days. Oy.
The Fed gave in, and the markets are now "in control", or so they think. The dollar is now at risk of a full meltdown. Once that happens, the Fed can cut rates all it wants, but without foreigners buying U.S. assets, the entire economy is at risk.
So this whole Bernake not being Greenspan thing... what was that about again?
I'm just in shock.
this morning i watched as marc faber on bloomberg implicitly compared the us dollar to the zimbabwe dollar.
with steps like this being taken 4% off the all-time high in the s&p, i'm not sure how he could fail to be wrong in the end. it's stunning to realize how addicted we are to monetary expansion.
If most people on this forum are convinced we're headed for a recession, why is there so much concern about inflation?
Kick the dollar in the ass on a day when the July foreign purchases were dismal. Goodby dollar, and for what?
Is the economy OK now or is it just that wall street execs guaranteed another great year-end bonus?
My guess is they are scared to death at what cratering home prices would do for our consumer based economy. But sorry- that ship has sailed. .5 won't do any more to stop the fall than all the past increases did to stop the rise. Or maybe they want inflation to come and save screwed borrowers that way.
Welcome to Argentina everyone!!!
Woooooooohoooooooooooo!!!
Release Date: September 18, 2007
For immediate release
The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 4-3/4 percent.
Economic growth was moderate during the first half of the year, but the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally. Todays action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time.
Readings on core inflation have improved modestly this year. However, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.
Developments in financial markets since the Committees last regular meeting have increased the uncertainty surrounding the economic outlook. The Committee will continue to assess the effects of these and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Charles L. Evans; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; William Poole; Eric Rosengren; and Kevin M. Warsh.
In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 5-1/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Cleveland, St. Louis, Minneapolis, Kansas City, and San Francisco.
Bernanke steroid put
Steve, I have a note for a billion reichsmarks from pre WW2, now there was inflation and depression.
Are we actually surprised to see this?
Has anybody mentioned helicopters?
I don't know how one argues against the safety of gold right now. Forget the yield issue--they are burning the dollar.
Steve,
I'm concerned about deflation short-term but inflation long-term.
I guess it all depends on how you want to look at it.
It's going to be ugly when they have to stuff that genie back in the bottle.
Gold, Oil, Weapons, Ammo, and Farmland.
We regret to inform you , but your online broker is absolutley swamped right now with sell tickets...
so sorry that you could'nt get a fill
i can't speak for anyone, steve, but imho demand-driven inflation isn't the concern -- reckless monetary and credit expansion is. i fully expect demand to drop. but oil can keep right on going in spite of a decline in demand if the currency its priced in is being debased.
I thought what was interesting was the unanimous bit. I'm sure there was some disagreement and they are covering each other, i.e., they're scared.
I just came by to join the party also.
Maybe CR & Tanta can be the first to interview the new defacto head of the Fed, Jim Cramer, and ask him what it has been like to pull of his coup d'etat.
Can you imagine how many phone calls he is going to get today from his Street buddies ? He will be preening tonight, as he should. All those guys are Masters of the Universe, after all.
I just replaced my toilet role with
a stack of American toadskins.
ah, unanimous is the way to go. i think every greenspan move was unanimous
I thought that the Fed almost always went unanimous on their rate changes.
378 visitors
hi count is?
So I guess it's official - we have a "calamity"?
Savers screwed.
yup I'm now convinced they're going to try and inflate away the debt away.
inflate the Federal debt away, coprate debt, and consumer debt, a three-fer. And they'll tell themselves it'll help domestic manufacturing....
TBH I'm amazed the dollar has been as risilliant as it has been, mybe they thik they can pull this off.
432
CR,
I have the statement in full if you can't get through.
Federal Reserve Helicopters Deployed
I made money today, but it was a bet made against the USA.
Ignorant, incompetent and corrupt--Heck of a job, GWB!!
hey i just saved 1000's on interest payments! woo! gonna go buy that LCD TV i've had my eye on.
I'm a big Faber fan and totally see why the US$ should be toast but maybe there is a chance a lot/most of the kicking is already in the price. I don't know...just arguing. The $ has taken a serious beating over the last few years and currency markets tend to swing way too far to one side at any given time.
449
ECB coming next. no one wins with a dollar worth zero.
interest rate differentials will make a difference once again, i promise
464
yup I'm now convinced they're going to try and inflate away the debt away.
to be honest, it makes me want to go out and run my credit up to the limit. anything i borrow today, i will have the luxury of paying back in greenbacks worth a fraction of what i borrowed.
"So this whole Bernake not being Greenspan thing... what was that about again?"
Maybe it's about neither of them really being their own master. Directly or indirectly, Wall Street is really in charge.
474
MoM- I think you'd be hard pressed to find an example of a change in direction at Fed that wasn't unanimous.
Goodbye dollar. Last year I was paid in pounds, this year in dollars ;(
To infinity, and beyond!
What good is a 50 point cut? I mean if they did 25 and things really went to shit credit market wise you could do another 25 next week and say they'd cut more as needed.
This is just a green light to all the crazy ass speculators in the world that the fed does indeed have your back.
Stupidity.
Easing bias as well. Inflation worry is a lip service, actions speak louder than words.
482 online people
only 300million more to go before everyone is edumacated
I dont even know what to say.
CR,
Forgot to mention you are free to copy it from me if you wish.
They must REALLY be afraid of deflation.
I was worried Ben might take a stand and hurt me for abandoning the dollar.
jeez 531
Stock Whores seem to love it...pass the CoolAide!
Who's gonna start the dollar bonfire?
Gotta keep warm!
543 Visitors Online
Craps - Are you the Count on Sesame Street?
543
Investment Strategy for the next 18 months.
Gold, gold stocks. Simple.
543--
when this trend reverses, sell the market....HARD
Bears on suicide watch.
I almost shorted the market, almost, I knew that was a sign it was going to go the other way. I am NEVER right. It's like a genetic dysfunction.
559 ---ROC slowing
Wow my tin foil hat portfolio is now in orbit: 13.59% green in GLD and 20.50% in OIL.
Although my paycheck is now red 15%
596-
scratch that, roc not slowing
I wonder what the BRIC and oil crowd are going to do? Are they going to watch their hundreds of billions inflate away?
IMHO, over the medium-term interest rates are going up, not down.
I know people are going to giggle and snicker when I ask this question, but here goes:
How is the dollar debased by lowering the fed rate?
Lloyd: I bet not. And "bet" is all anyone can honestly do, given the Pandora's Box of today's big cut AND all else that has happened.
But if you would believe, as I do, that currency and equities traders had equally priced in Fed expectations, don't look down, as Indiana Jones might say.
604 visitors.
604-
Ben, Mr krugman, Hank
ty for making this site number one
...and E-trade has completely crumbled under the load...
609-
who else shall we thank
hmmm....
ok, al...
Wow...
USD v EUR
625
thx to mt lewis, mr blankenfein, mr cioff, mr cayne, mr prince, mr lewis, my kovner,
Stock market may go up, but it sure as fuck won't stay there. People are tapped out and the building jobs aren't going to come back in a snap. Lending will tighten regardless. We may get a new bubble, but nothing employs as many or drives sales as much as housing.
Financials are happy too!
Fed's half-point cut "tremendous news" for market
I know people are going to giggle and snicker when I ask this question, but here goes:
How is the dollar debased by lowering the fed rate?
In the short-term it's because of interest rate differentials. In the long-term, it's not.
Pesodollars.
Fed to REIC:
Laissez Les Bon Temps Roulez!!!
649
- mr sac, mr loeb,
Shit...I wish I was being paid in pesos.
I didn't have to read the Fed release. I knew the announcement was for half a point when I saw that the market was up as much as it was.
Party is definitely ON!
Our old friend would say: "More farting through (lower interest rate) silk, baby bears!"
657-
thx mr donahue(cem ceo)
Carry trade; BoJ could really bend us over the rail. THe Fed has got to have an inside track that BoJ won't move their 0.5%.
I think 50 bps was right on target. I am a little surprised the statement didn't mention possible weakness in the labor market. Though, we it says monitor these developments closely, I expect that it means that after Sep and Oct NFP we can expect another cut.
Ten-year rates moving up..
In the short-term it's because of interest rate differentials. In the long-term, it's not.
The dollar fell dramatically in the wake of the last round of rate cuts and still continues to fall. So recent history, at least, doesn't support this claim.
678
- thx to state street, leheman, fido, cap re,
If you consider every dollar as a share of stock of USA, Inc., your investment just tanked.
Not sure when printing and selling more shares ever got a company out of trouble.
Ron Pauls head probably just exploded
The 50bps cut is just the beginning. I'd like to repost the link to Ben's speach which earned him the moniker, "Helicopter Ben". Please re-read and this time take it to heart. That is if you value your wealth and want it to maintain any value.
Remarks by Governor Ben S. Bernanke
Before the National Economists Club, Washington, D.C.
November 21, 2002
Deflation: Making Sure "It" Doesn't Happen Here
Speech, Bernanke --Deflation-- November 21, 2002
682-
ROC look again- slowing
So did Bill Poole wake up to find a horse's head in his bed, or what?
And does Cramer own a headless horse?
I tell you, if this blows our webpage too I'll really hate the Fed.
Excuse me while I go download my last savings account statement. I'll want to frame it.
"How is the dollar debased by lowering the fed rate?"
Here are the basic stylised facts -
Imagine you had $100. You could invest it at 5% in the US or 5% in Germany. Now US interest rates fall to 4.5%. It would be smart to invest the money overseas. Since German banks take Euros, you buy Euros and invest them in Germany. If lots of people do this, there are lots of dollars sold and lots of Euros bought. Less demand for dollars = falling dollar. More demand for Euros = rising Euro.
All, I think the biggest surprise is that people on CNBC are surprised. The market expectations were a coin flip between 25bps and 50bps. So there was no real surprise.
It will be interesting to watch long rates (and the Libor) over the next few days and weeks.
Best to all.
695
Somebody say something intelligent to justify all this traffic.
someone please correct me if I'm wrong but I thought I read that he BoJ has NEVER raised rates when the Fed is cutting (or at least over the last 20 years or so). BoJ is on hold now that they are slipping into a recession as well and domestic subprime lenders are filing ch 11 over there.
695-
thx mr jpm, alliance, goldman sachs, brandes, wellington, barclays
Craps acyduecy:
New visitors record minus previous record = CR coefficient for marginal inflation from Fed cut.
Spread the word, but don't tell Tanta.
692 visitors
The dollar fell dramatically in the wake of the last round of rate cuts and still continues to fall. So recent history, at least, doesn't support this claim.
Recent history absolutely supports this claim. Go look at the numbers.
When the Fed was raising rates and the Eurozone was stuck in the 2% range, the dollar rallied and did very well against the Euro. It was only until the Fed reached the end of its tightening cycle and the ECB began to hike rates that the dollar weakness reasserted itself.
Time to seriously abandon the dollar. I've already shifted a significant portion of my porfolio out of the USD; I'm about to cut the remaining portion in half.
The only thing I'm happy about is that we've screwed the Chinese.
Somebody bring back Volker! I miss him...
Time to seriously abandon the dollar.
Save some to wipe with.
692
1st downtic-
thx american century,blackrock, janus, t rowe, Deutshce, oppenheim, ubs, de shaw, vanguard, tiaacref
This move guarantees the US will enter a depression. Oil price will rise, real inflation will be over 10%.
THEY CUT RATES AND THE TEN YEAR TREASURY YIELD WENT UP! The exact opposite is supposed to happen.
That's the definition of capital flight. When this is figured out by the mainstream, the US economy is game over bigtime.
704
downtic aberation, check t&S, maybe a misprint
thx-
us trust, cap guardian, lord abbett
credit suisse, tcw, citadel(again) really luv mr griffi
When I saw that story about OPEC willing to up output over oil at a sustained price of $80, I really should have clued in to the 50bps cut.
We've screwed the chinese?
LOL!
They own us dude.
It would be smart to invest the money overseas.
So this was done to send deposits to NR ?
All, I think the biggest surprise is that people on CNBC are surprised. The market expectations were a coin flip between 25bps and 50bps. So there was no real surprise.
It will be interesting to watch long rates (and the Libor) over the next few days and weeks.
I think oil prices also bear watching. So far they're up significantly - no suprise really. A surge in oil prices and long rates I think could effectively undo any benefit of lower short rates.
It's possible that the Fed knows things are much worse than most people realize, but if this is in effect a "Bernanke Put" then we could be in very serious trouble. FWIW the "Greenspan Put" didn't occur during a period of domestic economic troubles, so maybe the action is justified, but I think there's a real danger of a "terminal melt-up" in equities and commodities leading to a Depression style event.
In either case I now have to seriously reconsider weather it's wise to hold dollars.
708 -
to much correlated advanced math for me-
straight data here
thx- axa, neuberger, loomis sayles, franklin, columbia asset, jacobs levy, marisco, bank of nova scotia(scumbag-), dresdner
The $ Index is VERY close to its all time low. Maybe that will actually make headlines.
INO Equities Stocks Indexes - U.S $ INDEX (NYBOT:DX) Price Chart and Quote
Craps acyduecy, the granite counter.
You're a rock, dude.
718 - should I go short again or not yet ???
So... will this lower the interest in my maxed-out credit cards?
Congrats CR. I never thought they would lower this year.
720-
thx wells cap, aronson, dreyfus, northern trust(we know u bene, too)
dodge & cox, southeastern asset, tudor, ing, rbc, delaware inv mng,
Speculators win.
691 visitors.
Well, I for one can't understand Wall Street- to get more drops in the fed rate they should be selling rapidly. Of course, somebody is taking their profits as the people buy this blast higher.
Well, now on to move my fixed debt down to even lower rates to provide more money in my pocket. I think this might just keep housing from a utter crater- more "soft" landing attempts.
As for the carry trade- today and tomorrow provide a magnificent opportunity to get out with profits. That Yen should start rising again and the metals markets are smelling real inflation on the horizon. Opec doesn't care, because they will just keep raising the price of crude.
Long term this will be quite bad, but then in the long run we are all dead.
Someday this war's gonna end...
732 Visitors Online
Oink!
The dollar dipped to 115.1 against the Yen just after the announcement, but the BoJ jumped right in and it is back to 115.7 Yen to USD.
Eat drink and be merry for tomorrow we may die.
This display of financial group psychology is most disturbing, I think I'm going to need a bigger mattress.
When should I sell my XLF and DSL calls which expire this Friday ???
724
thx artisan partners, evergreen, fred alger, gartmore, nys common retirement fund, waddell reed, trd texas,
Here is the bail out we have been looking for. Let see what happens with the LIBOR.
Long Bond not tanking......
So it has come to this ... we are so consumption dependent in this economy that a recession can no longer be tolerated by the panjandrums in DC, who more and more resemble some Soviet-era apparatchniks out of a long forgotten history lesson. Bernanke and his limousine riding cronies have shown their hand, and it doesn't look like to me like a strong one.
We'll see if they even accomplish their short term goal of preventing a recession. My take is that this action will in the long run prove impotent.
Plus they've now used two bullets; they may regret this later.
Consumption strike anyone?
Thanks rcyran and Steve. So I guess this means you have to buy dollars cheaper than other curriences to get the same rate of absolute return as the higher foreign interest rates. Sounds like Joe 6-Pack just got really screwed.
Gotta work on selling more articles to British magazines.
Just an anecdote, but I recently sold some old books and things on ebay. Almost ALL of the buyers were from Europe.
US crap must look like a screaming bargain right now.
The FED is more concerned about financial markets than the dollar. The FED trying to inflate asset prices is a recipe for disaster.
It was indeed a coin flip but I'm still surprised.
I only hope that after the dust settles (around 2010), monetarism would be a dirty word and societies would realize that money is too serious stuff to be left for central bankers.
740
thx legg mason, seligman, ge asset, davis select,federated,galleon, bnp, maverick, hotchkis, lsv asset, pioneer, powershares cap, primecap, abp inv,
OK i have not got all the way downthread but F'ING DING - 729 visitors - Tanta & CR take a bow please!
USDX now looks like all the other charts . . . off a cliff !
"be positive" er ah "nice symmetry"
"Craps acyduecy, the granite counter.
You're a rock, dude."
Tanta,
Why are they counting the granite? No one will tell me!! aaargggnooooo!
Anyhoo, I'm guessing we are in one hell of an insolvency crisis.. I was dumbly convinced Bernanke wouldn't cut the rate like this.. so I have to rationalize my mistake somehow.
Dollar's not crumbling just yet; Bernanke and crowd no doubt took out some sort of insurance in advance.
But one more shock to the economy, or the dollar, might do it. I predict it'll happen in several months, after the nation as a whole has been convinced that things have "calmed down" for good. Could be the economy tanking, Bush going all Biblical on Iran, or just one too many interest rate hikes. Ultimately, there's no doubt that they'll pick at the dollar until it bleeds.
The Whore of Babylon rides again!
740
hi count-
i'm a rock-
is that good or bad
thx - to one last account-
CALPER's may all your retiree's retire on Whale Watch Way....
Man that dollar index plot is scaaary kids - what is oil doing?
Assuming the FOMC is not batshit insane they must be really scared and believe that no matter what they do things are going down. Assuming this is the case,and they see rate cuts as having a lag before taking effect they probably cut the rate to get ahead of it(or even with it).
Having said all that....I still think it's the wrong move. This country needs some pain to clean out the shitty capital allocation, restore the industrial base, re-instate taxes where there are supposed to be taxes, and lastly CLEAN OUT THE SPECULATION and get back to actual INVESTING.
The long bond is just a bit concerned about inflation.
The TIP (TIP) bond fund is outperforming its non-inflation equivalent (IEF). Both are down due to the rise in interest rates.
Short-term fun exchanged for long-term pain it seems.
Hmm this could be an ingenious ploy to get the Chinese to abandon their peg, it's kind of like life guard training, when a drowning man latches on to you and won't let go you dive down deeper and deeper until they freak and swim for the surface...
That TOTALLY makes sense! Ok so no problem here, move along.
Being a bear is like being an environmentalist, you can tell people we're fucked in the long run all you want. But they can't look away from the Hummer ad on TV long enough to listen.
Gold now at 27-year high.
Bernanke has out-Greenspanned Greenspan.
And when I say rise in interest rates, I mean out at the long end of the curve, the forward looking part.
CNBC, Bloomberg, etc...and their parade of experts manipulating public opinion and attempting to influence policy are eerily similar to Fox News and the "War on Terror". I suspect the results will be the same...
Oct. crude closes at fresh record of $81.51/brl, up 94 cents
energyecon,
here is a good summary:
View Oil, Gold and Copper Stock Market Trades, Streaming Charts Available Online - CNBC.com
Gaah - oil hit another high of course, but the MSM cheerleaders are pumping that it is anticipating demand due to economic activity...
Lag time for rate cuts to hit real economy vs. the near month futures contract anyone? anyone? Buehler?
I suggest everyone here get a penpal from Zimbabwe...we'll need some pointers.
Sorry for the repeat...my hands are still shaking from the all the madness around me.
Why are they counting the granite? No one will tell me!!
They are not counting the granite. The granite is counting them.
It is also watching them, especially while they sleep.
Once they become fully paranoid schizophrenic, the granite will emit this really creepy high-pitched laugh.
I think someone needs to cook up an "I CAN HAS RAYTCUHTT?" version of the "I CAN HAS CHEEZBURGER" cat..
If someone out there recognizes the font (maybe I should just google it).. let me know and I'll give it a whirl..
I CAN HAS CHEEZBURGER?
Zandi was overly optimistic a year ago. And now he's overly pessimistic:
"We have a very soft economy and if the Fed doesn't lower rates then the economy could fall into a recession," said Mark Zandi, chief economist at Economy.com.
Could he have a conflict of interest if some of his corporate clients stand to benefit from a bail out (in the form of lowered short-term interest rates)? I'm not happy that the Fed has bowed to pressure from the whiners at Wall Street (and their consultants, like Zandi).
I remember now that Economy.com was purchased by Moody's some time back. Moody's is responsible for giving AAA ratings to MBS (essentially junk), that many pension funds, and other institutional investors, ended up buying. It turned out that Moody's, like S&P, had a tremendous incentive to give prime ratings to junk bonds.
And now Mark joins the chorus of whiners asking for (and getting!) a bailout. Disgusting.
I'm not an economist so maybe somebody could poke some holes in this line of thought:
The US has a very strong economy, even excluding the paper magic from the RE bubble. Stronger than anyone else's at this current moment. The problem is that we're up past our eyeballs in debt and can't break the average consumers' voracious appetite for imports, so we've got no way out unless we say that we're just not gonna pay. Of course that wouldn't fly.
However every other major economy out there owns our debt. If the dollar crashes, and I mean REALLY crashes (we're talking wipe our asses with 50's) Then our debt becomes worthless and our consumers are forced to buy US, because they can't buy anywhere else. The US enters a depression and literally takes the rest of the world with it.
Wouldn't the US economy recover faster, considering our consumers would be spending in house and not in the rest of the world?
The only hitch would be foreign companies possibly buying up US assets at firesale prices, but then our xenophobic congress has proven hesitant to allow such transactions in the past.
I dunno... is a potential global depression national suicide or the US finally trading in our checkers board to play chess with the rest of the super economies?
I know people are going to giggle and snicker when I ask this question, but here goes:
How is the dollar debased by lowering the fed rate?
Colin | 09.18.07 - 2:43 pm | #
If they're willing to lend at a lower interest rate, it's because the underlying asset isn't worth the investment at the higher rate. It's just like getting a sub-prime loan on a falsely inflated piece of real estate, or maybe the creative financing schemes used by Detroit. It's Dollar Daze!
"They are not counting the granite. The granite is counting them."
Tanta,
In Soviet Russia, the granite counts YOU!
..I suppose that would mean they have "people counters" in their homes?
"Once they become fully paranoid schizophrenic, the granite will emit this really creepy high-pitched laugh."
eeehhehehehehe!
Lag time for rate cuts to hit real economy vs. the near month futures contract anyone? anyone? Buehler?
If I remember my intro econ - it takes something like six months for the cuts to effect the 'real economy' and more like 18 months for the full effect to be felt (and by then dissipating as cuts/increases are temporary effects).
Again somebody feel free to correct me if I'm wrong.
But my guess since the credit markets were so constipated it will kick in faster. Just getting the deals moving will juice the system a lot. Considering existing 'real' inflation - probably way too much.
My guess is some of the hung deals will now move however.
My take (cross post from Zacks.com)
The Federal Reserve gave into the desires of the Street and Capital Hill and cut both the discount rate and the fed funds by 50 basis points. This puts Fed funds at 4.75%, and the discount rate at 5.25%. Below is the current policy statement along with the previous statement and my take on the differences, paragraph by paragraph.
The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 4-3/4 percent. (today)
The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent. (8/7)
This is self explainitory.
Economic growth was moderate during the first half of the year, but the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally. Todays action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time. (Today)
Economic growth was moderate during the first half of the year. Financial markets have been volatile in recent weeks, credit conditions have become tighter for some households and businesses, and the housing correction is ongoing. Nevertheless, the economy seems likely to continue to expand at a moderate pace over coming quarters, supported by solid growth in employment and incomes and a robust global economy. (8/7)
The assessment of the past remains the same. At the August 7th meeting the Fed was confidant that we would have moderate growth for the rest of the year and into 2008. Now it hopes that this action will be enough to keep the economy from going off the rails. While it looks like the previous cut in the discount rate on August 17th did manage to get the gears of the credit market unstuck, the Fed feels that more lubrication is needed to prevent another seize up. So far it does not appear that the problems in the financial economy has spilled over significantly into the real economy. The Fed wants to take no chances of that happening. There has also been significant political pressure on the Fed to ease up, from both ends of Pennsylvania Ave. Hedge funds (political donors) were hurting and the Fed had to help! Politically, lower interest rates always look good, even if they are not in the long term interests of the economy or the country. (me)
dry,
that is all financial - not the real deal with additional investment in say, mid-western manufacturing!
time will tell as with all things
continued:
Readings on core inflation have improved modestly this year. However, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully. (Today)
Readings on core inflation have improved modestly in recent months. However, a sustained moderation in inflation pressures has yet to be convincingly demonstrated. Moreover, the high level of resource utilization has the potential to sustain those pressures. (8/7)
This is a much more dovish tone. Notice the lack of mention of high levels of resource utilization. Has spare capacity grown significantly over the last six weeks? No. Have the last six weeks offered any real evidence of a sustained moderation in inflation pressures? Well, we had some good news on the headline PPI this morning, but with oil pushing $81, a record nominal high, it is obvious that that good news will be reversed in the Sept numbers. Gold is at levels we have not seen since the days of the Hunt Brothers trying to corner the silver market. The dollar is at its lowest level in decades. None of that seems to be convincing evidence that inflation has been totally tamed. (my take)
Developments in financial markets since the Committees last regular meeting have increased the uncertainty surrounding the economic outlook. The Committee will continue to assess the effects of these and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth. (today)
Although the downside risks to growth have increased somewhat, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the outlook for both inflation and economic growth, as implied by incoming information. (8/7)
Inflation fighting has fallen far down the list of Fed priorities. This very much leaves the door open to further rate cuts in the future. The street has gotten what it wished for, but then again the street should be careful what it wishes for. The Feds credibility as an effective bulwark against inflation has just taken a body blow. The kids were whining badly and Daddy Fed just gave in and let them have all the candy they wanted. Later the market may regret it as inflation rots away its teeth. The other interpretation is that the Fed was very scared about the possibility of a huge unwinding of the Financial system. (my take)
Geez. The direction of everything in the short term just became very uncertain.
In the long term, I think it's a coin flip between hyper-inflation and severe depression.
I just picked up the phone and bought more gold.
641 visitors. that's gotta be a record.
Crony capitalism is alive and well as Fed colludes to perpetuate selling of 'American Dream' as we fast become a bigger version of Mexico.
If you're a bank you can borrow short cheap and lend long for a great profit when the ten year rate goes up in response to a lowered FFR. They can party hearty. Just buy some CDS to cover their behinds and rake in the spread.
Bernanke is a terrible disappointment, like King at the B of E.
1590 SAT the good Dr. scored, so he's darn smart. But, I just do not see it, the rationale for a cut. It is just making a bigger mess to clean up later.
Donate to Ron Paul!
Ronpaul2008.com - congressman Resources and Information.
Bernanke channels Greenspan and thinks bubbles are the way out of previous bubbles. Like an alcoholic who thinks more drinks will do away with the hangover.
that is all financial - not the real deal with additional investment in say, mid-western manufacturing!
Ya if the dollar tanks midwestern mfg will do well in a Soviet Bloc sort of a way... We'll all be working but for 'less'. Poszi and Broker will know the joke updated for modern readers...
"They pretend to pay us (in dollars) and we pretend to work."
The point is they had a choice between driving off an inflation cliff or having a head-on credit crunch and they took the cliff. So now all we can do is take in the view and enjoy the ride.
I was pretty sure Ben would show a little sack and stand firm . . . 25bps tops.
Are there no adults left in this government at all?
At the Kitco.com site:
IMPORTANT:Due to technical difficulties Gold pricing being displayed is incorrect. We will not be able to honor any orders at this time. We are currently working on the issue and anticipate resolution shortly. We apologize for the inconvenience and appreciate your patience.
Dirk,
I have always mantained that the Fed does not give a damn about inflation.
What the Fed care about is WAGE INFLATION.
The Fed job is to keep economy growing without too much wage hike.
Now, the Fed knows that wages will not be going up so it is free to cut.
Notice how "resource utilization" (euphamism for workers asking for a raise) have disparead:
Readings on core inflation have improved modestly this year. However, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully. (Today)
Readings on core inflation have improved modestly in recent months. However, a sustained moderation in inflation pressures has yet to be convincingly demonstrated. Moreover, the high level of resource utilization has the potential to sustain those pressures. (8/7)
Everyone is saying this won't help sub-prime borrowers at all... by extension then subprime lenders and firms that were burned by ARMs in general are still screwed... no?
A REO is a REO no matter what brand of crack Ben is smoking this week.
Roubini is supportive:
Nouriel Roubini | Sep 18, 2007
The Fed did the right thing today by cutting the Fed Funds rate by 50bps rather than the 25bps that most market participants were expecting. The liquidity and credit crunch in the financial markets is still serious and the downside risks of a hard landing (recession) are now large enough that doing 50bps was the minimum necessary to try to prevent a hard landing. In my view this is still too little too late
I agree Yal. We'll all be workin'... for less.
Can any of you recommend the best way to buy Gold and how to buy Euros? This will in no way help the housing market, it's about prices not mortgages..
Yal,
Seeing that the Fed came into is's own under the Roosevelt administration saying they always existed to suppress worker wages seemes a bit much. The last 30 years you might have a case, but making an "always" statement doesn't seem defensible.
However every other major economy out there owns our debt. If the dollar crashes, and I mean REALLY crashes (we're talking wipe our asses with 50's) Then our debt becomes worthless and our consumers are forced to buy US, because they can't buy anywhere else. The US enters a depression and literally takes the rest of the world with it.
We would not be "wipping our asses with 50s" though the rest of the world might. Unless there is truly unpresidented inflation here in the US dollars will still remain valuable to us.
However, yes a collapsing dollar would fire up domestic manufacturing but crush China.
Its not completely clear that a collapsing dollar would send the US into a recession because
1) Despite the fact that we buy a lot from abroad not too much is otherwise unavailable. The most important import is oil and its price is likely to fall if China's economy collapses.
2) US exports to would improve as long as the global slowdown wasn't too severe.
The biggest shock to a collapsing dollar would be the potential for skyrocketing long term interest rates. However, even that is not clear. If China's stock of treasuries collapses in value tomorrow, the last thing they might want to do is unload them at firesale prices.
Im surprised that Roubini would be that supportive.
"Here, hold my beer and watch this!" - Bernanke
Just this morning some wit snuck onto NPR news that annualized inflation rate in Zimbabwe is down to about 6600 percent this month, which is about a 15 percent decrease from its high point.
Oct. crude at $82.19 after regular trading close of $81.51
"always" refer to me "I have always mentained"...
The only Fed I have been watching was Greenspan and now Ben....
Hmm, the Chinese may be looking at their US treasury holdings and getting the same sick feeling that some of us shorts feel today.
However, somehow I doubt that the Chicoms are gonna just sit back and take it like a punk.
When do I sell my XFL and DSL calls which expire Friday ????
still holding DSL short and few FED PUTs.
I am thankfull I sold all the rest....
not sure what the near future will bring. New high in a month ?
Karl,
US exports of WHAT? We can only sell so much corn and scrap paper. The industrial base in much of the country is gone. People aren't going to build new US Steel sized factories just b/c the dollar has been in the tank for a year or two.
I just applied for 4 yes 4 credit cards, and got approval for all 4, when they arrive I am maxing the shit out of all of them..yup I am truly going to do it.
"fire up domestic manufacturing"
Not going to happen.
Roubini is supportive of the rate cut because it validates what he has been predicting...though I don't recall seeing him call for a rate cut...
1) Despite the fact that we buy a lot from abroad not too much is otherwise unavailable. The most important import is oil and its price is likely to fall if China's economy collapses.
Only if the fall in global (Chinese) activity is greater than the fall in the dollar. Otherwise it is entirely possible to see oil go up IN DOLLARS as global consumption in BARRELS goes down.
That is the very essence of 'stagflation'.
The key measure will be if the price goes down in EUROS per bbl. My guess is it might even as it goes up in dollars...
That is unless the ECB steps into to mortally wound the euro too... currency MAD isn't out of the question.
1MM denomination pre-WW2 german marks are proof that depression and inflation can exist side-by-side.
Commercial and mortgage interest rates are being driven by the marketplace -- Fed has little influence here any longer -- they are pushing on a string. Fed lowering interest rates will have little affect anywhere except maybe on agency conforming loans, which aren't helping anyone now anyway. Get ready for a huge Equities crash after the the initial euphoria. This move guarantees a recession, and faster now than ever. Carry trade will explode on yen appreciation, forex will be in complete disarray now -- going to see some fireworks in the hedge fund arena for sure. Watch how fast foreign CBs and private buyers of US debt exit stage left with high risk and low rates. Interbank lending isn't going to feel a sudden rush of lending confidence over this. Look for US banks in need of cash to continue to have to offer high rates on CDs in order to cover their CP. Interest rates everywhere may well GO UP.
The big screwing is about to begin....
Everyone is saying this won't help sub-prime borrowers at all... by extension then subprime lenders and firms that were burned by ARMs in general are still screwed... no?
I'm sure some of my betters could say more and with numbers, but two points: 1) A lot of the worst of the worst loans are indexed to libor, so that index would have to follow suit. 2) The problem that the borrowers ran into in the first place was falling prices, which kept them from being able to refi out of scheduled payment resets. If the reset index does fall, that still is only going to help some marginal borrowers, and therefore won't ease the credit problem at lenders that much I would think, because prices are still falling (unless the RE version of the ppt gets out there and churns some local housing markets, of course, a move which is now cheaper).
Bill gross says that 3% is a good target rate.
Fed funds rate can fall to 3 percent: Gross
| Reuters
So did paulson get any guarantees that the chinese would not go nuclear?
"US exports of WHAT? We can only sell so much corn and scrap paper. The industrial base in much of the country is gone. People aren't going to build new US Steel sized factories just b/c the dollar has been in the tank for a year or two."
Metrics Wonk,
Lumber is a good one..
borka,
Do you plan on paying off those credit cards with a wage increase?
Sign seen in the corner 7-11 circa 2011:
"We do not accept any bills less than $20."
dryfly,
That is the very essence of 'stagflation'.
D'oh!
In other news, the rate cut sure is going to help the housing market. If by helping you mean to force more people into short-term type thinking potentially dangerous adjustable rate mortgages that is.
The rate on the 30 year fixed mortgages may just follow the yield on the 30 year treasury bond (and that was up today).
Behold the law of unintended consequences!
XLF calls not XFL - you may have noticed I am dislectic (I once shorted BHRB instead of HRB .... good the limit did not catch..)
Dollar @ 79.03...we just might touch the all time low 78.19..thanks Ben for the Bend Over, I am now working for free.
Robert,
A correction:
We do not accept any coins less than $20.
more bad news...
House approves bill aiding mortgage borrowers.
The House passed a bill on Tuesday that lowers down payments for borrowers, raises loan limits and boosts funds for housing counseling. Passed by a vote of 348 to 72, the bill reforms the Federal Housing Administration and is the latest lifeline thrown to borrowers from Washington as the fallout in the subprime-mortgage market continues. It also directs up to $300 million a year into an affordable housing fund. The Senate Banking Committee is scheduled to begin work on its version of the bill on Wednesday.
This is rediculous...
I prefer the "Take a $20 leave a $20" tray.
Don't worry. The private credit creation process is currently frozen stiff. Unless it gets thawed and well-greased, the rate cut policy on its own won't generate much inflationary pressure.
Meanwhile, the inflationary threat is likely to come from the lower US dollar and more expensive imports.
In the long-run, foreign investors are much less willing to hold US and dollar-based assets. This unwinding of the capital globalization is likely to be very, very painful for the debt-laden economy.
borka,
Do you plan on paying off those credit cards with a wage increase?
In all honesty I am Debt free and living within my means or years...but after this..why bother...I just might not pay them back at all...Prudent gets you no where obviously.
BBBY up >5%. XHB up > 3%. $GOLD up
OK, that was gold up less than 1%.
Full Panic Mode in Washington...Look out below.....
People abandoning the US$ will be as unhappy as people who abandoned the stock market 2002/3.
O-Joe
How will a cut in Fed interest rates revive credit markets when the real question in the credit market is whether the instruments being sold have value (and what is the actual value?)
The rate cut says that the Fed has grossly underestimated the speed and severity of the problem.
Remember "CALAMITY" Poole?
Does this mean this is a calamity?
Now doesn't this rate cut restore your confidence?
maybe Bernanke is cramers bitch...maybe...but not so fast. it could be that the lower interest rate is the "breather" the CBs and others need to unwind the derivatives time bomb. The clock is ticking...and when the blast zone has been cleared... helicopter Ben will turn into Volker...maybe.
Stagflagtionary Mark is to become the King of Economical Forecasters.
Congrats!
I think the majority here are one cycle too many ahead of the pack ----
I think a hard landing ie recession is coming, and the US will take down the world. thus the interest rate differential is max right now with the US at the lead. But once the rest of the world catches the flu, other rates will come down and the dollar will strengthen (relatively) I bet gold will also correct during the slowdown (Marc Faber believes this as well)
It is in the next growth cycle that all the issues of the fiat currency regime are going to come home to roost, and runaway inflation is likely until real interest rates climb to the peaks of previous decades.
But the destruction will be MORE in US/UK than ROW, and so the next cycle up will favor Asia...
I'd welcome someone pointing out what's wrong with this thinking.
Okay.
Step back.
Look at the big picture.
The dollar is tanking (inconceivable 5 years ago).
The housing bubble has burst and is deflating, putting (or soon to put) millions of Americans into bankruptcy.
The manufacturing base has been sold off/abandoned to foreign interests (except for the tres lucrative burger production capacity).
Energy, food, and healthcare costs are at all-time highs (I believe this is true when adjusted for inflation).
We are financing the war to nowhere.
Personal debt is at an all time high, resulting in a negative savings rate.
The National debt and budget defecits/defecit spending are out of control.
Unemployment is growing (on the upside, millions of illegal aliens will retire to their native countries - as there will be no work for them here).
The stock market is BOOMING.
Something is wrong with this picture.
"Do you plan on paying off those credit cards with a wage increase?"
fjr,
nahh.. he can just roll the debt over into another set of cards with higher balances.. since he'll have such good credit for making minimum payments to the 0%APR ones.
Never pay again! ¡¡No paga sin justicia!!
O-Joe,
Here is what would have happened if you bet on the US$ from 2005/7
INO Equities Stocks Indexes - U.S $ INDEX (NYBOT:DX) Price Chart and Quote
Who else caught Maria Bartiromo's spontaneous exultation before the commercial break?
As co-anchor Dylan stammered in his own paroxysm of joy, the scoreboard blinked green, 300, and up, up, up...
All too silly for words, and too scary to think about. Still, the ghoul within says: no WAY September 18, 1929 was this much fun!
I'm going on a consumption strike. Buying used rather than new, discount vs. retail, nothing but the bare necessities for me and my family for the next few months.
It's my way of giving the Fed the finger.
The conclusion was clear to me buy,buy,buy WB's bank stocks with high yields some weeks ago.
Hopefully these banks will raise their dividends soon on top of the nice appreciation, while my MM yields decline.
Right now we may see a minor correction in the markets, though.
O-Joe
I'm switching my retirement savings into USPS forever stamps. Suckers.
Well, one effect is for sure. This is going to make domestic inflation really boom in China. They are already struggling with it. That peg is going to be VERY hard to live with. They are going to very quickly be facing a stark choice - revalue or face domestic unrest and rampant inflation.
The rest of the BRIC's may soon start having a fun time of it also.
So I see Bernanke subscribes to that old hangover cure -
'What makes you bad makes you better'
The problem is that one day the drinking has to stop then everyone is going to feel lousy.
CR
Can you give us an ubbernerd expalanation of the FFR process mechanics and how that "cheap" money gets dessimenated to 'help' the economy. I have been serching for a no BS explanation so I could get past the 'fed speak' but i have not been able to find one. I know its a tall order maybe you could break it up into segmented posts.
Thanks of all the great info keep up the good work.
ChicagoDude | 09.18.07 - 4:06 pm | #
Ha! Good idea!
ECB's will be cutting soon.
Chicago Dude:
Glad I'm not the only one who raised an eyebrow at USPS "forever" stamps. I can see clearly now that their issue was a brilliant one-liner in the tax-cutting, rate-cutting, spendthrift Bush Follies.
23 Skidoo...
Hold That Tiger...
STARVE THAT BEAST!
"Consider this: In 2000, when Bush took office....
...So much for taking the away the punch bowl."
borkafatty | 09.18.07 - 2:25 pm | #
borkafatty-
I sincerely hope that you are the original author of these previously published comments.
If not; in the future - let's quote, give credit where credit is due, and provide the linkage to the source: Mike Whitney: U.S. Banks Brace for Storm Surge as Dollar and Credit System Reel
Ron Pauls head probably just exploded
fjr
Are you kidding me? I'm sure he's mostly in gold. He'll grin and bear it.
I think we can all agree on what we don't have: another Volcker. Poor USD.
I still don't see how $5/gal gas helps keep up the prices of homes and consumer spending (ex-gasoline, of course).
Good luck with that, Ben. You've made my day.
Today's cuts can be interpreted as Bernanke = Greenspan Redux, or as a one-time reaction to a one-time event, to be followed by a return to data-watching.
I think that the consensus for today's cut emerged only because there is also a consensus on the need for a return to data-watching. In fact, without the latter, I doubt today's 50/50 cuts would have been possible.
In any case, the Fed reaction was warranted -- a lot of systemic but not visible damage has been done but not recorded. More importantly, we still face a period of (enforced) deleveraging, which means that prices of many (investable) items will fall, even though rates are lower.
dryfly,
This joke about us pretending to work and them pretending to pay was rather about terrible productivity of these nightmarish times than the value of the currency but in fact unemployment was 0% and the average wage was 1$ per day. Prosperity, indeed.
I thought Bernanke would not cave in and give a cautious 25bps decrease but now I'm angry I was so naive. Although I managed to diversify and have only 30% of my portfolio is in dollar denominated assets, I feel it's still too much. I don't trust ECB, either. I'm not even sure euro survives the next few years but it's still probably a better bet than USD.
I sometimes think the only way for Americans to learn that inflation is bad is to experience hyperinflation. Or better hyperinflationary depression to teach them that inflation is not a cure for depressions. Apparently international evidence is not sufficient for them.
"Unemployment is growing (on the upside, millions of illegal aliens will retire to their native countries - as there will be no work for them here)."
On my 30 year chart, unemployment is still near record lows.
When you wake upand roll out of bed every morning, does the pom-pom on your nightcap hit a record high?
To the comments by MIKE WHITNEY posted by Borkafatty, I'd like to add a suggestion to also look at the prices of grains and industrial metals, both in 2001 when the last monetary easing cycle started and today.
dotcommunist,
I do not doubt that Ron Paul is mostly in gold. I think his head exploded because he knows that most of Americans are not and they have no idea what todays Fed decision even means, except for the DOW UP UP UP!
724
740
732 Visitors Online
Ahhh, I was thinking you were ticking the price of gold.
I'm thinking, "it hit 740 today??!!
btw, oil is now at $82.38/bbl.
Wow, Ben, you are not smart.
Marcus Aurelius:
No, nothing wrong here. The Fed will inflate the money supply aka print dollars. That will reduce the real burden of debt, thus encouraging further consumption. It will also tend to increase corporate earnings. (Measured in devalued dollars, of course. I mean, devalued against anything that cannot be printed: gold, oil, grains, industrial metals, etc.) Higher future earnings mean higher stock prices.
Let the good times roll!!
Markets up, oil up, Euro & Pound up; how does this help roll over CP? How does this help unwind leverage? How does this help those who are upsde down on their house.
How does this even oten the pain?
I hope helicopter Ben got more than 7 pieces of silver.
Chilean peso, take me away!!!
Stop the drinking? Never! I'm going to get drunk and burn some dollars in backyard.
I wrote this before the rate cut
Why Bernanke shouldn't blink
Imagine this situation: You have a friend who spends money like it is going out of fashion. All he does is buy things or invests them in crazy schemes. But in order to fund his spendthrift ways he needs to borrow money from his family and from friends like you.
One day your friend comes up to you. He is in a parlous state. He has lost all his money on failed investments. He owes so much money that some of his belongings have been repossessed already.
You shake your head at his story but you can't help but feel as though your friend is entirely to blame for his situation. You knew the warning signs were there and you're miffed at the fact that the ten thousand dollars he owes you may never come back.
You also know what he should do. He should cut his spending and live more frugally. He should divert most if not all of his remaining income into paying off his debt. You know that this process will be hard for him, but before you can say anything he asks you: "So, are you going to lend me money to cover my costs? Come ON man!".
What would you do?
By the time you read this, Ben Bernanke may have publicly announced a cut in official interest rates. To me, this is the complete opposite of what should happen. If you haven't worked out my anecdote already, the spendthrift friend is the market, who is reeling from the Subprime meltdown. You, of course, represent the Federal Reserve bank.
I'm a great believer that economics is actually simpler than what most folks think. I believe that the anecdote I have shared is true both in its micro and macro form - the best way to make people treat their money properly is by treating it seriously. This is as true for the poverty-stricken underemployed worker in Michigan as it is for the Wall Street stockbrokers who command eight figure salaries.
To cut interest rates would, in this case, be the same as lending your spendthrift and near-bankrupt friend more money. The Subprime meltdown, which is likely to plunge America and much of the world into recession, is a result of market failure. Easy money and easy credit have distorted the market's ability to spend and invest wisely.
But the market is, of course, demanding that Bernanke cut rates. "Come ON man!" they are saying to him "we'll be ruined if you don't cough up!".
It seems to me that the market's argument is that the cause of the problem is its solution. If easy money and easy credit have caused the market to go haywire, then the solution is more easy money and more easy credit. To me, this makes as much sense as a heroin addict arguing that the best way for him to get off drugs is to have another hit of heroin.
But in the anecdote you have the chance to say to your friend "No! I am not going to help you in this. The best thing for you to do is stop spend