Early Tuesday, after serious declines in foreign stock markets over the holiday weekend in the U.S., the Federal Reserve made a steep, three-quarters point cut in the key interest rate it controls eight days before its widely watched policy committee meets. This means that Fed boss Ben Bernanke put the key Fed funds rate is now at 3.5%, back to where it was in the autumn of 2005.
Here’s what you need to know about the Fed and troubled global stock markets (Click on the headlines to be linked to related stories) …
• Stock markets in turmoil.
• Fed’s first emergency cut since just after 9/11.
• The Fed’s rate-cut statement, in good part, blames housing.
• O.C. investment experts advise caution.
• O.C. mortgage makers see cheaper deals
• How Pimco’s Fed watcher knew the Fed would act.
Do you think the Fed’s doing a good job? Rate Fed Chairman Ben Bernanke’s performance by taking a poll.
And for some history, do visit this recent history on Fed interest-rate actions.
Is the Fed doing a ‘good job’? They are doing all they can do now, but they don’t have a clue.
The current situation is 100% due to the buildup of too much debt. Much of the blame for that lies with the Greenspan Fed. Everytime Wall Street hiccuped….he cut rates and pumped credit into the system. The biggest offenses came 2002-2004 when real rates were pushed negative.
They tried to beat back the business cycle. Well guess what…the business cycle happens for a reason. It is part of capitalism. Poor investments must be liquidated, and capital redeployed in a wiser manner. The 2002 recession should have been allowed to be much more severe so the rot could be washed out of the system. But instead, the FED pulled out all the stops to reverse the cycle. The cost was immense.
Now their hands are tied. They can cut rates further….it wont matter. Who wants to borrow at 2.5%….when their nominal return is negative. Leverage only works when your nominal returns are higher than your cost of capital.
Don’t even get me started on inflation, and the bogus data coming out of the government.
On the plus side, this is a perfect set up for a crash. This emergency cut will give the market just enough hope to stabilize…and maybe even rally on some tidbit of good news. But down the line, another ’suprise’ event will occur…everyone will finally realize the FED is impotent at this point, and the market will crash…..possible 2000 points or more in one day.
Put another way…how do they expect to solve a problem caused by too much debt lend against crap asset by pumping more debt into the system.
There is nothing anyone can do. The US has been borrowing our lifestyle for a long time. We are going to have to start paying….soon.
Great, so conforming mortgages for people with good FICOs and a nice down payment will go down. Are they going to buy another house or just refi? You tell me??
And the flippers who are now walking away in droves, the neg am folks, the many already under water and struggling?? Nothing can stop the downward trajectory except mailing a check for $200,000 to every californian. Bernanke, bless his soul, believes in honest money, he will take convincing to monetize the debt. Things will have to get very bad for these disciples of Milton Freedman to actually climg into the helicopters.
This cut directly proves that the FED finally stopped denying we are in a serious ressesion.
Disband the federal reserve. They are completely useless. They created the dot com bubble and the housing bubble with cheap money to benefit their friends on Wall Street. Most people don’t realize the federal reserve is a privately owned company. They are not a part of our Government and you cannot vote them out.
If you have money saved or earn money in the form of a paycheck, YOU just got a pay cut that goes directly to Jim Cramer. By continually devaluing our currency they are declaring war on the American citizens. Thomas Jefferson was quoted as saying, “I fear the banking industry more than I fear standing armies.” This is what he meant, the federal reserve has taken control of our country and they have betrayed you. If you are CEO of Goldman Sachs and recently received 68 million dollars for your Christmas bonus then ignore this message.
The side effect of this strategy is why the canadian dollar now has the same value* (*as determined by the “honest” international bankers) as a US dollar. Even Costa rica now wants to unpeg their currency from the dollar to take advantage of the destruction of the dollar.
Meanwhile as the dollar becomes more devalued it becomes cheaper for Chinese communists, and Terrorist Saudi Gasoline funds to reinvest (aka launder) the money back in US banks and companies that we sent over to buy gas and slave made goods in the first place.
Globalization = robbery of the american working class disguised as “progress”
VOTE RON PAUL - he is the only candidate that addresses this issue!!!!!
It’s obvious that the Fed paniced. When the Fed panics, it means they are in a state of desperation, clueless, lost of credibility, and lost control of reality. In other words, it’s MUCH worst then they led us to believe!!!
“At this juncture . . . the impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained” - Ben Bernanke, March 2007
Q: How many times will the FED hit the Panic Button before they are able to contain themselves? Baw-Haw-Haw!!!