I find it very fascinating the entire market is absolutely gung ho that a rate cut WILL occur, mainly on the basis the economy is slowing and credit markets are falling into disarray again. So tell me guys -- am I the most naive person in the room thinking the markets are a little too gung ho on the possibilities of a rate cut when we have $100 oil, USDX at all time lows (hey look AUDUSD just hit .91 !!!), and plenty of good companies actually releasing GREAT earnings? The investment banks, banks, etc who've made a killing the past few years off this mortgage boom are finally giving back a portion or all of their windfall profits from the housing runup. Fine. And yes, according to the bears the consumer is somewhat tapped (well, not according to bestbuy or Microsoft earnings). Why doesn't the fed just wire the I-banks and banks funds as a goodwill and get this over with. We don't need rate cuts here. They'll cut and oil will hit $110 at this rate, USDX down another few percent, etc.. Imagine when China is tired of seeing their dollar assets deflate. Watch what happens when China strengthens their currency and people go shopping at Walmart ! Doesn't the fed realize the deep shit they'll be in if they cut rates here, and oil keeps up price into a season where crack spreads are high? ($5.00/gal gasoline here we come) $5.00 gasoline is probably like an effective 2%+ rate hike. It'll hurt the consumer (and the rest of the foodchain) much more than a lousy 25bp will help business. The whole thing honestly pisses me off now. I thought the 50bp cut was good to sooth the markets amidst a crisis. But continued acceleration of this loose money policy is the same as Bush committing more troops to Iraq; basically following bad decisions with a double down. Ie: going into Afghanistan to wipe Bin Laden and the Taliban in 01 was a move hard to argue with. Going into Iraq, not quite. Following with more rate cuts is like going into Iraq. Can't we just acknowledge I-banks are going to lose billions more, some might even go out of business (god forbid!!!), and take the pain on the rest of this housing boom deflation ? Someone please give me Ben Bernanke's email address. Either the market is reading Bernanke very very wrong, or we are all fucked.
Global rebalancing. We have to export more, China has to consume more. Our exports are going up, hence the good MSFT earnings, which have nothing to do with US consumers, btw. Almost all of our tech cos reported blowout earnings, and that has to do with exports. Tech is what we export. Housing is a drag, but exports are a boost. The Fed knows this, and if they cut, they cut because of this reason, more than anything else. As for the Chinese, Ben will answer as John Connally did in 1971, when Nixon closed the gold window: "It's our currency, but it's your problem." The Chinese may not like hearing that, but I for one ain't Chinese.
NOTE: but a lot of the Tech manufacturing happens outside the USA ..."As for the Chinese, Ben will answer as John Connally did in 1971, when Nixon closed the gold window: "It's our currency, but it's your problem." The Chinese may not like hearing that, but I for one ain't Chinese."... The same arrogance the British Empire had, sure a short term play, but evetually roosters come home ...
MSFT, GOOG, EMC, VMW, CSCO, HP, SNDK: almost all have substantial overseas interests. But the majority of their activity happens in the US. France would kill to have these companies inside its borders. Just ask Sarkozy.
Very nice post. You for one get it. At the end of the day the cheap dollar is what's keeping us out of recession. Hell it may even save housing.
I wrote my congressman.. Probably a futile effort. Does anyone know where I should email to have my voice be most effectively heard? Dear Representative Bilbray, I am very concerned about federal reserve and dollar policy at the moment, and need to ask your help in sending this message to Ben Bernanke or an applicable federal reserve governor. While I realize the federal reserve is a private organization independent of the US government, there are obvious ties and relationships between the two entities. Please guide this to whoever you best see as this having this most impact. Dear Mr. Bernanke, I find it very fascinating the entire market is absolutely gung ho that a rate cut WILL occur, mainly on the basis the economy is slowing and credit markets are falling into disarray again. So tell me I the most naive person in the room thinking the markets are a little too gung ho on the possibilities of a rate cut when we have $100 oil, USDX at all time lows, and plenty of good companies actually releasing GREAT earnings? The investment banks, banks, etc who've made a killing the past few years off this mortgage boom are finally giving back a portion or all of their windfall profits from the housing runup. Fine. We don't need rate cuts here. If the federal reserve cuts rates, what holds oil back from $110 or even higher, USDX down another few percent, etc.. Imagine when China is tired of seeing their dollar assets deflate. Watch what happens when China strengthens their currency and people go shopping at Walmart ! Doesn't the fed realize the deep risk they put the economy inif they cut rates here, and oil keeps up price into a season where crack spreads are high? ($5.00/gal gasoline here we come) I'm sure the inflationary effect of $5.00 gasoline is probably like an effective 2%+ rate hike. It'll hurt the consumer (and the rest of the foodchain) much more than a 25bp will help business and sooth the credit markets. Subprime assets nor bad debt will barely be affected by 25bp of movement advantageous to their direction. This is evidenced by the Sep 18 50bp cut and the performance of ABX tranches to this point. I realize a weak dollar policy stimulates exports, but this method to keep the economy afloat is possibly a dangerous gamble to take. Lowering the value of something does not help guarantee the future value will recover. Can't we just acknowledge I-banks are going to lose billions more, some might even go out of business, and take the pain on the rest of this housing boom deflation ? I urge you not to cut rates.
As for arrogance, they complained bitterly about Connally 36 years ago when he said that, and I'm sure there were plenty of people predicting gloom & doom for the US all through the Seventies. Yet here we are, and the US is still the largest economy, and the dollar is still the reserve currency. Wasn't a short term play back then. Might be now, who knows? All in all, though, not likely.
Do you have any 2007 data showing reserve status of dominant currencies? I wonder how USD verus eur fares for total reserves right now. Even if the Chinese have 1.5T of USD, the petro region countries might have that if not more in Euros already.
The POUND was the currency while the British Empire was mighty with her navy and large common wealth. Then WW1/WW2 sent her broke. Massive debt is the underlying reason why the pound fell. USA is doing a self implosion, debt is well on the way. I am not from china, but they have the savings, the growth but yet to acquire the freedoms, they soon will be richer and larger in GDP than USA ( soon well 20 to 50 years maybe)
In other words, the Chinese economy is undiversified, and a trillion of dollars in goods has been exhanged for a rapidly depreciating asset: U.S. T Bills and Currency. This is even better than Europeans buying Manhattan from the Indians. China cannot sell even if they wanted too. Who would buy?