Posted on 09/18/2007 11:17:42 AM PDT by NaturalGorilla
Federal Reserve Cut Fed Funds Rate by Half Point, to 4.75%. Discount Rate Cut Half Point, to 5.50%.
(Excerpt) Read more at economicsbriefing.com ...
Pathetic job growth, consumer confidence tanking, home equity plumenting thus less cash available to consumers, foreclosures increasing, declining growth. Our economy was OK, but there were signs we needed some life support. Homebuilders and finacials were headed for their death bed and that would have pushed our economy into recession.
“Pathetic job growth” But growth nonetheless.
“consumer confidence tanking” How people feel differs from what they do.
“home equity plumenting” Only the folks who did stupid things will be harmed. And to undo a stupid thing is good, not bad.
“less cash available to consumers” Not according to all the usual barometers of inflationary expectations, which are flashing red: Gold, Oil, Currencies. They all suggest too many dollars chasing too few goods.
“foreclosures increasing” Good. Let’s get houses priced right, and in the hands of people who can support the debt required to buy one.
“declining growth” Growth declined in Q1, and some in ‘06. But the most recent quarter, Q2 had 4% YOY GDP Growth. That is ACCELERATING growth.
was = is
this wont do anything for those folks in foreclosure, it will only help out the shyster hedge fund manager who recklessly invested their money.
there was no job growth last month...who read that?
Great! Not I’ve gotta pay for the house-flipping idiots that got in over their heads!! (In the form of lower interest on my savings). More welfare for people that make bad decisions...we now have a socialist-reactionary government, even when there is a “Republican” in the White House. Oh well, maybe house prices will stabilize now...that is their promise anyway.
No problem. And congrats for succeeding. You put in the work and it shows on the bottom line.
So far it looks like we are BOTH correct because the market is pushing the price of gold up to new highs.
Now I have a question for you: Do you think I am correct when I assume that the recent Fed action is NOT to bail out the homeowners but to add liquidity to the financial system?
My assumption is based on the fact that at least one Trillion Dollars of mortgages are going to be adjusted this year and next. It really doesn't matter what the Feds do, those "exotic" loans that are being adjusted, had a 2 year low-rate teaser period that MUST be made up for the duration of the mortgage...
Yes. The homeowners mainly are not going to be getting a bailout. There may be a few ARMs that re-set a bit lower, making some marginal home-buyers still "in the money." But mainly, I think the Fed is dumping liquidity into the system to grease the credit markets so they can function (primarily) and to avoid a recession (secondarily). That this introduces substantial inflation risk is something the Fed is happy to accept in order to achieve those objectives.
My argument, though, would be that their primary responsibilty is monetary stability. Their credit market function and recession avoidance objectives are being served by ignoring their primary responsibility.
To avoid the risk of a recession, they are taking pre-emptive action. That's a very dicey proposition. If the recession really wasn't going to materialize, they've definitely set the tone for inflationary expectations. The "Bernanke Put" will have been proved, and risk takers will more regularly assume any potential market downturn will be greased over with cash by the Fed. That is a recipe for inflation, and a real crash (a la Carter / Volcker) before you can fix it. Then it takes a decade to reincarnate your inflation fighting credentials.
Gold, oil, and currency markets all hated the Fed action from an inflation standpoint. The stock market loved it from a liquidity and recession avoidance standpoint. I'm richer today because of it, at least temporarily. Only in some far off future will we be able to look back to see if they were right or not. If we're sad about our highly deflated dollars, we'll be pissed. If we're sitting on a huge pile of stock value, and the U.S. dollar recovers, the Fed was right.
I'm just more on the hawkish side of that judgment call.
OBTW - The Phillips Curve is dead. Someone needs to tell Bernanke.
;-)
Now that is a blast from the past. I haven't heard the phrase since I took econ in college back in the early eighties.
So you think this time it is going to be different? We will see. Personally, I think that curve is alive and well in Venezuela...
OTOH - The Laffer Curve is alive and well. Someone needs to tell Hillary.
Ha!
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