Posted on 09/17/2007 5:10:39 PM PDT by Kaslin
Economy: What the Fed does Tuesday will set the tone not just for the rest of the year, but for the rest of the decade. With so much at stake, the central bank has to get it right. That means a bigger rate cut than expected.
In this case, the right thing would be to drop the fed funds rate at least a half-point to 4.75%. This would help keep the credit crunch from morphing into an ugly recession — something the Fed can avoid if it acts quickly and boldly to re-liquefy the economy.
A little over two weeks ago, Fed Chairman Ben Bernanke said these words: "Well-functioning markets are essential for a prosperous economy." Fed policies, he added, will try "to promote general financial stability and to help ensure that financial markets function in an orderly manner."
(Excerpt) Read more at ibdeditorials.com ...
“...bail out the financial biggies...”
Cutting the fed funds rate will move hundreds of millions of dollars from the pockets of credit card and mortgage companies into the pockets of consumers. (That’s you and me.) You don’t sink the entire citizenry of America in a misguided attempt to punish “biggies” who will be fine in any case. I don’t care if a “financial biggie” is worth $700 million or $750 million. I do care that 70 million families can lower their credit card payments and mortgage payments by a couple of hundred bucks a month.
LOL, no, I’m a twit-kicker!
Just how much room do you think the Fed has to cut rates before the dollar goes into the tank?
They need to jack rates hard....inflation is wild...think 1973 again...
I'm saying the real rate of inflation (i.e. not the BLS BS) is higher than the interest rates on treasuries.
Our policy makers convinced us we don’t need a manufacturing base, we would be an information economy. At the same time they continued to debase the education system through policies of ego enhancement and political correctness while at the same time debasing the currency by running the printing presses. We borrowed from the Chinese while we moved the greatest manufacturing infrastructure in the world offshore.
Over the last 20 years, while we’ve ditched the base of our economy we’ve lived through three speculative information economy bubbles (S&L crisis, dot com, and now real estate boom). Face it, our nation does not produce items of value to sell to its own people much less the world. Oil is $80 per barrel, versus $28 when Bush came to office, because we’ve sent our productive capacity elsewhere and the Arabs know there is nothing backing the dollar. Lower interest rates and the dollar will drop further against the Euro and the price of oil will rise.
Note that in the recent liquidity crisis it was the Europeans and the Japanese banks that stepped in to support the US, not the Chinese.
Time to focus on rebuilding America. Energy independence (drill in Anwar). Rebuild US manufacturing so we aren’t at risk from shoddy and tainted products. Put in a flat tax. Stop subsidizing private equity firms with a 15% tax bracket while small businesses actually building wealth pay 30%.
Get rid of the speculation on Wall Street. The money men at the investment banks and private equity firms are killing our industrial base with the collusion of big government and politicians on the take from big corporations and China. Take back our economy before we become a third world economy.
it would seem obvious. but the market is beginning to adjust rates on its own according to percieved risk. the fed needn't intervene by cutting to send the market any "messages." No cut with a bias, like stated elswhere. if the market freaks, it needs to freak, because that's part of the process.
pricing risk can be managed one way, inflation another.
The stepped in to support America?
I beg to differ.
And sure enough, just glancing I found what I was afraid I would...
Get rid of the speculation on Wall Street...
Pity your education never made clear that speculation is required for the functioning of capitalism and free markets.
I gather you'd prefer the alternative, as long a someone else paid the bill.
Wow, that’s one enormous conspiracy theory you got going there.
Well, er...uh looks like we'll just wait and see tomorrow. I think they will drop the rates...But no one knows right now.
We’ve binged on debt from a personal balance sheet point of view and cutting interest rates isn’t going to cure the problem.
I believe the fed is smart enough to know this, but its very possible they will cut rates by .25 basis points tomorrow. They are stuck between a rock and hard place on this one right now. Damned if you do, damned if you don’t.
The answer to the question is. Is the fed willing to sacrifice the value of the american dollar and all those retirement savings, for short term fixes?
Not a conspiracy. Merely consequences of action by government and industry over time. Government tax, trade, regulatory, and spending policies have over two decades encouraged actions by industry that have moved our manufacturing base offshore. As trade barriers went down, manufacturing shifted to countries with lower wages, lower taxes, and less regulation. The quicker route to profit was perceived to be moving production instead of making significant productivity enhancing investments in aging US manufacturing infrastructure. For example, go to China and visit the furniture manufacturing plants that have replaced the US furniture industry in North Carolina in less than 10 years. These plants have state of the art equipment and processes which had they been placed in the old US factories they replaced would have significantly increased productivity. The workers work for $100 to $120 per month versus the $2400 per month of a skilled US nonunion hourly worker. Plus, the Chinese factory has limited taxes on exports, low to no social security and medical costs, and limited inventory risk.
Lower tax rates for private equity firms than small business, combined with loose monetary policies have resulted in huge pools of money that are being “invested” in financial speculation and restructuring of companies (read downsizing and offshoring) instead of building productive capacity.
What happens to our economy long term if we continue to produce and sell less to other countries than we buy? Ultimately, the bill has to be paid. If our financial institutions won’t invest in new productive capacity in the US, who will? Until government policies encourage investment in the US, our manufacturing base, and the underlying foundation of our economy, will continue to erode. There are consequences to policy.
Agreed.
High risk can have high consequences. Debt must be paid down and asset prices must reflect the new reality before confidence is restored.
Restoration of faith will be a long process some are saying 10-15 years. That would be a calamity.
No control regimen is perfect in preventing occasional excesses and that applies especially to the Fed with its 'managed' currency.
BUMP
Manufacturing is gone and isn’t coming back. Not ever. Those without the skill sets required will continue to sink lower and lower.
The European and Japanese banks stepped in, with the Federal Reserve, to provide liquidity and prevent the collapse of the US dollar, not to support “America”. It was in their own economic interest at the time to prevent a liquidity crisis in the US which could have rapidly become a global crisis and meltdown since the US dollar is still the reserve currency. The Chinese banks sat on the sidelines. If you have other information please share. I was on a business trip to Asia at the time and the bankers there were carefully watching the Chinese banks.
I have no issue with speculation in the market, it is part of a capitalist system. I do have an issue with government policies that encourage speculative excess. From my perspective the federal government trade, economic, regulatory, and tax policies of the past 20 years are destroying the manufacturing base required to sustain economic strength. Current government policy encourages financial speculation over long term investment in US productive capacity. In the current world financial projections suggest higher profits can be realized in the short term by moving existing and expansion production offshore than making the 20 to 30 year investment of capital in the United States. Wall Street focuses on quarterly profits, private equity looks at a 3-5 year investment horizon. Unfortunately, manufacturing investments involving infrastructure require at least a 10 year horizon.
If my choice is making a 20 year investment in a US factory realizing a 15% annual profit and being taxed at a 35% rate on the annual earnings versus making a 3 year investment in a private equity fund taxed at 15%, where am I likely to “invest”? For the private equity fund to generate its 15% return, it will offshore investment in manufacturing in order to significantly increase margins and profitability in the short term. Government tax policy currently favors returns on capital appreciation versus annual income from operations. As long as this policy is in place, investment in productive capacity will flow out of the US. Speculative bubbles will occur in financial instruments and real estate, as we’ve seen.
My solution is not regulation. I’d prefer the government to promote the invisible hand of a capitalist economy by levying zero tax on profits and capital appreciation earned inside the US economy. I’d also like to see duties levied on imports that cover the real cost to the US taxpayer of these imports (i.e. customs, waterway maintenance by the Army Corps of Engineers, etc).
I don’t understand your last comment about someone else paying the bill. Someone does pay the bill when speculative bubbles burst. Unfortunately, some of the bill is often paid by people who are innocent bystanders. Think back to the Great Depression of the 1930’s. Not only did Wall Street pay for speculative excess, so did most average citizens. In the current mortgage crisis, the Federal Reserve and the government is bailing out the banks and financial institutions. The real cost of the speculative excess is being born by the millions of average people who purchased homes at what are in hindsight inflated prices propped up by speculators and reckless lending practices in the subprime market. I don’t advocate bailing out either the banks or the average Joe who paid too much for his home. However, in the current situation it seems the average Joe will pay a higher cost that the irresponsible lenders. Perhaps you believe this is the correct outcome.
Want to protect U.S. manufacturing? Then promote unions. They were the only ones pushing a somewhat protectionist agenda and funding pols who went along with them. Nobody else really cared because they loved everyday low prices as much as the suppliers loved “china price.”
Rather than “protect” US manufacturing I’d prefer to see even handed government policies. Government through OSHA and the EPA stringently regulates US factories, raising costs. Would there be lead on toys if Mattel was buying from a US factory? Unlikely due to regulation. Our government imposes costs on US factories, regulations plus the taxes that support the regulatory agencies, while at the same time placing no restrictions on the quality and safety of imported items. No wonder we import.
At the same time, government taxes income at a higher rate than capital gains. Build productive infrastructure (i.e. factory) to create a 20 year income stream and that income stream will be taxed at a rate over 30% by the federal government, not to mention state and local. Create a capital gain through financial manipulation (i.e. converting a company from domestic production to outsourcing) and you are taxed at 15% on the gain.
Import and the cost of the waterways, Coast Guard, customs inspections, and other infrastructure is paid by the taxpayer.
End taxation of profits earned on domestically produced goods for internal consumption or export and tax profits on imported goods and you’ll see a swing in production to the US. Bringing production back to the US will support long term economic growth as well as provide a route to the middle class for the millions ill served by the poor, government run, US education system.
“The Fed should raise rates to fight inflation.” Agreed...
OK, OK. Go get some fresh air. It's really nice outside this time of year.
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