These?
Posted on 03/16/2008 6:28:49 PM PDT by Aristotelian
Efforts by the Federal Reserve to restore order to financial markets are about to enter a new and potentially dangerous phase.
The Fed is expected to cut US interest rates by 75 basis points to 2.25 per cent, following its recent, more aggressive policy moves to improve liquidity conditions. There re-mains a clear possibility that interest rates will only be reduced by 50 basis points as policymakers attempt to evaluate the impact of their earlier efforts to restore confidence to financial markets.
Joachim Fels of Morgan Stanley says the Fed is about to enter a new phase in the easing of monetary policy that will take real interest rates below zero. This would be achieved with a 75 basis point cut. Morgan Stanley forecasts a further 50 basis points reduction to 1.75 per cent in April and rates to then remain on hold for the remainder of 2008.
Mr Fels says this marks the start of a new global liquidity cycle in which the combined but not necessarily co-ordinated efforts of central banks should lift growth and asset prices in 2009. However, the clear danger is that easier monetary policies will cement a new regime of higher global inflation, undoing years of hard work by policymakers to anchor price stability and inflation expectations.
(Excerpt) Read more at ft.com ...
Firms borrow to expand or retool. There may well be limits to how fast they can handle new capital, or possibly they have a saturated market and there's no reason to expand.
A major drop in demand for new loans can unleash deflationary forces.
Watch the price of houses drop like a rock!
Inflation is around 4% over what it was this time last year. Triple that value and you get about what it was just before Carter left office.
Wow, I knew that dude was old!!!!
Inflation no, devaluation of the dollar yes.
Inflation and Devaluation are different sides of the same coin.
Spices and herbs. Now that’s a business. Buy by the ton, sell by the ounce.
The discount rate was cut Sunday by 25 basis points. It’s expected the Fed will cut the Fed Funds rate by 75 basis points at its Tuesday FOMC meeting. Two different interest rates.
These?
Our inflation is much more than 4%, remember that they don’t count fuel and some other things anymore.
Speak for yourself...5%-8% inflation vs. my 1% per year wage growth...I just don’t like those numbers!
Ye they do count fuel and food. They calculate both with and without. With food/fuel it’s at 4%, and without it’s at 2.3% or such.
You can’t spend $1T on a war — with no budgetary sacrifices — without consequences.
Lots of brisk shopping in my neck of the woods too. A huge shopping village opened just three days ago. Smiles everywhere and money flowing like water. All the shopping centers where busy, restraunts too. Grocery prices were not more than usual when I shopped today. So will all that end tomorrow?
Do any of you remember from Eco 101. the Weimeire (sp) control of Germany after the 1st World War??
Why would people be smiling when they are running up their credit cards and sending money to China?
This is textbook stuff. But we're not close to a textbook environment. For one thing the interest rates are not set by the market, essentially they are set by the Fed. The Fed is all for low interest rates to make lots of money available. Investment in lending institutions, or lack thereof, has almost zero to do with the money supply in todays world.
The effective interest rate for a Wal-Mart can be 0% if they wish.
Then there's the credit card ~ make your own money!
0% wage growth is better than being fired with little prospect for a new job. Many people would say taking a wage cut is better.
What I suggested is inflation with a purpose—to stop a recession. That means it has to be strictly managed, or it will turn into stagflation, like during Carter, or worsen the recession.
Right now, food, perhaps our most controlled market, is being strongly inflated by artificial shortage, i.e. ethanol. Will this act, or can it be made to act, as a counterbalance against the housing recession?
The big questions is, since using food for ethanol makes little sense, is there going to be either a halt in its production, or is agriculture going to expand to provide food for market needs? That could cause a huge shift in the price of the next crop cycle.
Perhaps the best thing Bernanke could do would be to demand that Congress slash federal government spending by a huge amount. Literally suspend operations in much of the government.
Federal government chart:
tinyurl.com/ysnd68
This would pour huge amounts of capital into the federal coffers and strengthen the treasury. Several hundred billion dollars not being spent in a month would be a powerful tool to tackle market problems.
At this point, we have to consider alternatives that were unthinkable not too long ago.
At the same time, productivity improvement can also lead to "deflation" ~ with neither oversupply nor undersupply.
Computers, for example, have improved and their production has become less costly. Although there's no oversupply of computers, the price has been dropping like a rock anyway.
Yup, they had a big ol' drought, and production went to the basement.
Whereas we normally have a 60 day world supply of wheat we are down to a 30 day world supply of wheat.
Give us enough humidity and precipitation this Summer and the Northern Hemispheric wheat crop will produce a bumper crop and the price of wheat will fall back into a normal pattern.
Now, a grim prediction ~ give us a cool but dry Summer and wheat production will fall here too, and you'll see $50 wheat. At that point corn prices will begin to skyrocket.
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