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A Fed full-court press
Thursday, January 17, 2008
Geez, it looks like the Federal Reserve will continue to play some pretty tough defense against the stock market through the rest of the week. It's a virtual full-court press, or so it seems, where they appear to be saying anything and everything short of what equity investors want to hear - that they'll be slashing interest rates soon.
Not that slashing interest rates will help what ails the nation's economy, but, in the short-term it probably couldn't hurt.
Cleveland Fed President Sandra Pianalto led-off earlier today (yes, the sports metaphor just changed) and Fed Chief Ben Bernanke just wrapped up his House testimony with the rest of the line-up as shown below courtesy of Econoday.
Interestingly, loose-cannon William Poole has to wait until everyone goes home for the week before he gets to speak.
10 comments:
Slashing interest rates won't help, just tanks the dollar and makes gas and oil more expensive and end up increasing inflation, not cutting it.
If nobody has money to buy a new home, and nobody can sell a home to buy a new one, and nobody can actually get a loan because of the credit crunch, lower interest rates aren't going to help them.
Rock and hard place for Ben.... and us.
With BernanSpan and company out talking and the market in total chaos it reminded me of the final scene in "Animal House" when Kevin Bacon is assuring everyone all is well and don't panic and he gets trampled by the rampaging crowd!
It is starting to feel a little nervous out there!
I agree, interest rate cuts are counter productive.
There is plenty of money in the economy. It is not very well distributed, so most of the working class does not have enough money and end up borrowing what they need, paying usury interest rates.
Unfortunately, the fear of defaults on existing loans makes those with excess reserves unwilling to lend it.
There is a dam blocking the water to those who thirst for it. What to do?
For one thing, you can change the accounting rules and let the banks keep bad loans on the books and not have to draw down their reserves to replace them. Since the money was created out of thin air, and is already in circulation, should the loan not being paid back do so much damage? It worked for China.
The other thing you can do is print debt free greenbacks, and issue them in enough supply to quench the thirst of the consumer and allow them to be able to pay back their loans and spend the economy out of recession. This would be inflationary during full employment, but we do not have an economy operating at full employement (including discouraged workers not on welfare we have an unemployment rate over 12%).
Or you can just welcome a Depression and redistribute more of the wealth from the middle to the rich. The rich are the only long term beneficiaries to depressions, since they will have money left over to buy valuable assets at 10 cents on the dollar when the dust settles.
I'm with Ms. Woodka. Just how is even a little more free money going to not increase the problems brought on by free money?
We need Dean Wormer, not Chip Diller.
"No more fun of any kind!"
Bearish on commodities?
These guys are
http://www.reuters.com/article/reutersEdge/idUSN1750217420080117
Hope they are wrong: what do you think?
....and some more, from the Big Picture.
"The decoupling of the world is an illusion - serious recession in the U.S. would lead to world recession, and all those high-flying commodity prices would come tumbling down along with it.
Debt contraction is a deflationary event, and it is the threat of deflation that is propelling the Fed to slash rates - which they will continue to do until we reach a real negative interest rate."
I am starting to get nervous: what's you take?
Bearish on commodities is too general a question.
If you say bearish on copper and other base metals, which are sensitive to economic growth, then I certainly see the case to be made there.
If not for dubious production projections, I'd be bearish on energy as well since demand is likely to fall in the U.S. in over the next year or two. That's where the decoupling question really comes into play - if Asia can continue to grow based on domestic consumption, then limited worldwide production may still push prices higher.
As for precious metals and agriculture, prospects there remain much better than elsewhere.
"...which they will continue to do until we reach a real negative interest rate."
Haven't interest rates been negative for a long time? When I can borrow money for 5% and inflation is 6%, then am I not being paid 1% as long as I put the money into something non-dollar-denominated that keeps its value? (Disregarding transaction costs.)
I essentially agree with PFT on the problem. The solution could be new, higher tax brackets above 35%. Also, pop the $102K FICA cap off and watch social security's future improve.
In addition to overconsumption, all of this emphasis on wealth concentration during the "Long Boom" has proven to be a massive waste of society's resources. I am not advocating socialism, but I am saying that what we have now is insane.
I like the Animal House metaphor. I think it perfectly reflects reality in post Cold War America. 7 years of investing down the drain! It's time for a metaphorical road trip to go hear Otis Day and the Knights.
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