Fed sees "downside risks" to economy have increased, OKs 1/2 point cut in discount rate to banks.

http://www.cnn.com/ ^ | 8-16-07

[Hydroshock]

Fed declares "downside risks" to economy have increased, OKs half percentage point cut in discount rate on loans to banks. (Breaking

[Hydroshock]

And inflation keeps going up.

[Hydroshock]

This is not going to solve anything.

[Denny0205]

“Quick, the horse got loose, close the barn door!”

[Old_Mil]

While this may help with short term liquidity, it is nowhere near the 2%-3% cut that will be necessary to resolve the mortgage mess and prevent the coming crash.

[Moonman62]

You’re right. The discount rate isn’t used very much and it’s still 5.75%.

[Uncle Ike]

” 2%-3% cut that will be necessary to resolve the mortgage mess “

I think the ‘mortgage mess’ is a symptom — what we’re really seeing is the implosion of the ‘wealth effect’ myth...

[Greg F]

Wonder when they made the announcement. Dow futures were down 100 points. Fed jumped in there, looks like they rushed to announce before the market opened.

[WILLIALAL]

So now we are stuck with a mortgage crisis, and to fix that lower interest rates, and feed what has to be a growing inflation worry. Your federal deficits and trade imbalances at work.

[Old_Mil]

right you are...

[Greg F]

Your federal deficits and trade imbalances at work.

Yuppers. I was thinking yesterday why I am so bearish in an economy with good employment and good corporate profits and optimistic, shrug bad news off, bulls still around. I think it's because I don't see it as sustainable because of trade and budget deficits AND because the poor and lower middle classes are very vulnerable if the economy stutters at all, because of debt and low savings, so we will end up with real social problems if we get even an ordinary recession. There HAS been a division in the country.

[WILLIALAL]

Look how weak the US dollar is today, and almost no one seems to care. With a trade deficit running at 3/4 of a trillion dollars a year, and our GDP at 12-13 trillion, it doesn't take a very smart person to do the math and see that in 15 years our dollar will be worthless.
with 70% of our economy based upon consumer spending, doesn't look good for the future.

[Uncle Ike]

” 70% of our economy based upon consumer spending “

The economy is based largely on consumer *debt* — an unstable and unsustainable condition....

[WILLIALAL]

When this comes about, there will be a rush to have the government bail people out with massive government spending programs(sub-prime bailout being discussed now), which will only further the problem. Dark days ahead.

[WILLIALAL]

You are exactly right, the 70% only reflects what is being spent, not how it is being paid for. Dark days ahead.

[Greg F]

massive government spending programs = greater deficit = greater long term problems.

We are now in the “long term” that Keynes pooh-poohed.

Not that we ever really tried what Keynes proposed which was paying down the debt in good times and expanding it in bad . . .

[Toddsterpatriot]

Loaning money at 5.75% will keep inflation going up?

[Toddsterpatriot]

Your federal deficits and trade imbalances at work.

Federal deficits and trade imbalances cause inflation?

[WILLIALAL]

You know they do. You have to fund the deficits, no matter how high the interest rate you have to provide to encourage some one to purchase the securities. And the trade imbalances, money sucked right out of your economy that isn’t coming back. How do you make up the difference, make more money.

[Hydroshock]

This is inflationary adn bad economic policy. It will only make it worse.

[Toddsterpatriot]

You have to fund the deficits, no matter how high the interest rate you have to provide to encourage some one to purchase the securities.

Make sure you differentiate between the trade and budget deficit. The budget deficit is shrinking, so where is the pressure to raise rates?

And the trade imbalances, money sucked right out of your economy that isn’t coming back.

That money doesn't come back? Do the foreign dollar holders put it under their mattress?