Supposedly it allows the credit markets to start functioning again and staves off a bunch of CDO defaults that would have a large impact on the banks. I think too much credibility has been lost and any action is coming too late. Its going to take a long time before trust is restored. The rally actually started when a piece about the stimulus 2.0 came across the wire, that will have a material effect on the housing market as it will allow banks to renegotiate CDO and other RMABS without fear of investor lawsuits. The AMBK thing just juiced the rally already in progress.
JC had a interesting theory about how fed going to save the market http://www.tradethemarkets.com/public/1808.cfm
Thanks, it would explain why they don't care about inflation. When inflation fears are high no one wants to own the long term bonds and money flows to the short end of the curve. It will help people to refinance in to another ARM and will encourage refincing from fixed rates to arms. Growth better show up somewhere in the cycle though otherwise we will be right back where we are now but with a lot more people facing harsh resets. How that we get growth when the economy is going to be squeezed by inflationary costs at the same time we have rising unemployment and slow wage growth if any is the 64 Billion $ question. If that is really the Feds game it seems shortsighted which means that it probably is the Fed's strategy
Personally, all these rate cuts have sucked for me. Maybe I'm missing something. -i don't have any credit card debt so no help there -no help on the mortgage...been fixed at a good rate and rates haven't gotten low enough for a refi to make sense -i have no need to take out a home equity loan -I've seen the interest on my cash go from low 4% to mid 2.5%...gee, thanks. And if Obama gets to the whitehouse the taxes on my gains are going up? Ireland, here I come!