Yes, you're right - the solution for this crisis is not rate cuts but recession to reduce demand. Economy can't be driven by consumption anymore as all consumption is financed by new debt So demand must be cut by rate rises - it will deflate all commodity bubbles, make consumer responsible, remove account deficit and weaken China, Russia and Brazil Only deep recession may save US now
It could happen. We're a big failure story away from a serious credit market event - and it may not even be a US story. Here is an example of a catastrophic policy blunder, which IMO, the last 3 of the 17 hikes were - for real estate anyway. 2000 Jan. 14 - Dow hits new high of 11722.98 Feb. 2 - FOMC raises rates by 0.25% - fourth such rise since 06/99. Feb. 11 - Dow falls 218 to 10425 - correction - 11% below 2000 high. Feb. 18 - Dow falls 295 to 10219 - correction - 11% below start of 2000. Feb. 25 - Dow falls 230 to 9862 - first close below 10000 since 4/1/99 March 7 - Dow falls 374 to 9796 - below Feb. 25 close. March 16 - Biggest 1 day Dow rise ever - up 499 to 10630. March 21 - FOMC raises Fed Funds and Discount rates by 0.25% April 4 - Dow down 496.47 intra-day. Closes down 47 April 14 - Dow down 616 - biggest one day points fall in history May 16 - FOMC raises Fed Funds and Discount rates by 0.50% June 28 - FOMC stands pat on interest rates. August 11 - Bank of Japan raises rates for the first time in more than 10 years. August 22 - FOMC stands pat on interest rates again. Sept. 6 - $US Index hits highest level since April 1986 Sept. 22 - Joint ECB,FED,BOJ intervention to prop up the Euro Oct. 5 - ECB raises rates by 0.25% Nov. 7 - ? - U.S. election indecisive - no President elect Nov. 15 - FOMC stands pat - still no "neutral bias" Dec. 1 - U.S. election goes to Supreme Court - still no winner Dec. 13 - George W Bush declared President Elect Dec. 19 - FOMC stands pat - announces end to "inflationary bias" You can read the minutes where they realize they fked up. So, here's what they did (any of you boys have a futs position on on 1/3? :eek: ): 2001 Jan. 3 - Fed cuts Fed Funds (-0.50%) and Discount (-0.25%) rates between FOMC meetings - Dow up 299 Jan. 4 - Fed cuts Discount rate AGAIN - down 0.25%. Jan. 5 - Dow down 250 - ends week down despite rate cuts. Jan. 31 - FOMC lowers Fed Funds and Discount rates by 0.50%
Figures lie and liars figure. Here's my lie...errr, I mean figures on those jobless/unemployment numbers. Close as I can find there are about 190 million working age(18-64) in the country. Unemployment went up from 4.5 to 4.6. Doesn't sound like much, but that's 190,000 more than last month. Subtract the so-called gains(I reference them as so-called because most of those jobs are bullshit jobs) and we have a net loss of about 100K employed last month. Bottom line.....It ain't good in the general employment sector, it ain't been good, and it ain't gonna' be good anytime soon. Add to that the drying up of the home equity ATM that people have been using to survive and the future doesn't look too bright for Joe Lunch-bucket. Fed better damn well cut and right quick, or it's down the toliet.
Fed may cut if S&P blows through longer term support by 1380-1400ish. Freefall may ensue. Don't underestimate the possibility of ECB to do a simultaneous rate cut to allow for interest rate differentials between US/Europe to remain the same and avoid a 'contagion'. I doubt the Fed will wait for a meeting to cut if there is serious liquidity issues. BTW, from market actions, don't think it went well in China for Paulson.
Seriously; what wrong with people dreaming about rate cut; only result of it will push every resources exporting country switch their USD reserver to EUR; may be Chinese yuan; The only way to save the current bond problem is raise hell out of rate; jack it up to 8% at least.
If Fed doesn't care about $ why would they care about stock market? it still 25% higher than a year ago, that was a bubble type behavior - so why it can't be allowed to deflate to 1200-1300 range? People sold dollars today like crazy - there are a lot of dollars if $ still can go down sharply. But if I don't trust someone I will not lend him - doesn't matter if Fed custs to 0. Try to think - will you lend from your own money to AHM if they offer you 20%. I wouldn't So how rate cut can help?
think about it if the fed cuts than that is the official end of this bull market and the official beginning of a recession.......if the fed is worried then we should be FRIGHTENED. remember how the market and economy fared last time fed cut aggressively from 2001-2003 - total collapse in the market and the economy as well. and then all was well again once they started to hike.
The market has done alright when rates were higher than they are now. Rates are still at historical lows
Fed cut monday morning or Tuesday could happen. If lowering rates to 1% wasn't too risky, then lowering to 5% during the worst credit crunch in long time can't be too risky.