Posted on 01/22/2008 7:21:02 AM PST by jdm
After watching a tsunami of sell-offs in the overseas markets, Fed chair Ben Bernanke acted rapidly this morning to quell a big downturn on Wall Street. The Fed lowered the interest rate by 0.75, taking the rate from 4.25% to 3.5%, hoping that will convince investors to stay in the market:
The Federal Reserve, confronted with a global stock sell-off fanned by increased fears of a recession, cut a key interest rate by three-quarters of a percentage point on Tuesday, the biggest one-day move by the central bank in recent memory.
The Fed said it was cutting the federal funds rate, the interest that banks charge each other on overnight loans, to 3.5 percent, down by three-fourths of a percentage point from 4.25 percent.
The Fed action was the most dramatic signal it can send that it is concerned about a potential recession in the United States. It marked the biggest one-day move by the central bank in recent memory.
The Fed decision was taken during an emergency telephone conference with Fed officials on Monday night. Those discussions occurred after global financial markets had plunged Monday as investors grew more concerned about the possibility that the United States, the world's largest economy, could be headed into a recession.
Welcome to the activist Fed. Analysts expected action last week, and when that did not occur, expected nothing to happen until the next Fed meeting in two weeks. Bernanke took a page from the bipartisan interest in DC in the apparent recession, as the Fed's action comes as a piece with the stimulus package making its way through Congress.
Some may argue, though, that the Fed will make matters worse. This crisis started with a credit meltdown that came from poor loan decisions made when credit was cheap. Rather than lowering the price of credit as the Fed dramatically did here, analysts have argued that tightening credit and liquidity would be the better long-term strategy to resolve the actual problem, rather than addressing the symptoms.
That kind of strategy would force the country -- and the globe -- to suffer a recession as a corrective. That might be an effective economic strategy, but not a political strategy. In an election year, no one in either party wants to explain why they think a recession would be good for the soul. That is why we see short-term strategies like one-time tax rebates and credit-price drops.
Hopefully, that strategy works as intended. However, we could be seeing a repeated cycle of cheap-credit damage that we are inadvertently reinforcing.
UPDATE: Michelle Malkin has more thoughts on government using our money to stimulate the economy. Why not just let us keep it in the first place, and cut out the middlemen?
That’s what Reagan and Volcker did in 1981-82. Reagan was willing to take the heat for nearly 10% unemployment and lose 50 seats in the House in 1982 to get the economic house in order. Too bad Bush does not have the stones to do the same thing — and he isn’t even running this year!
Time to buy low—to sell HIGH, series
I dunno how true that is...you could be a saver and have your cash in equity markets and be happy about anything that could stall the panic setting in...
There should be a media blackout...it’s the news services that are driving it...
With this congress repub or dem, ha dont make me laugh
Amen, Amen, Amen. Rewarding borrowers rather than savers is no way to run a successful economy.
“Amen, Amen, Amen. Rewarding borrowers rather than savers is no way to run a successful economy.”.....giving out home loans like candy comes to mind.
“The war on savers and the responsible continues..”
Amen, Amen, Amen. Rewarding borrowers rather than savers is no way to run a successful economy.
That’s because there are more borrowers than savers, (i.e.) the responsible are becoming a minority.
Gotta admit that we are seeing some awesome PPT action this morning, not that the PPT is anything other than a figment of the imagination of some conspiracy theorists.
Pumping air into a popped tire.
You didn't read your doublespeak lessons. For the last 20 years debt is good and saving is bad. Only a fool didn't mortgage himself to the hilt to buy a house, live off the equity and pyramid his debt into a real estate empire. Donal Trump is our national hero.
Savings? Greenspan showed you don't need no stinkin' savings. The banks need money, well, he just sent them over a note saying he put some extra ones and zeros in their reserve account and off they are lending it out for more real estate boondoggles.
We don't have savers because the guys who run the financial system don't want savings. In order to have savings you have to pay people a few percent above inflation. It is a lot cheaper when the federal reserve generates enough credit to keep interest rates below the rate of inflation. The financial system wants debts. You make money off of debts, both a fee for handing it out, another fee for selling it and another fee for managing it. Debt is an asset, savings is a liability.
You gotta admire it. It is one helluva pump.
Looks like they threw another $10B to Wall Street today.
http://www.newyorkfed.org/markets/omo/dmm/temp.cfm?SHOWMORE=TRUE
it’s the news services that are driving it.
Yep, and the rich will need even bigger tax cuts. News services need to call to outlaw double digit tax rates.
If they lose some of it running up the market do they have to pay it back, or is it written off like a blowed up tank in the great patriotic war on financial negativism?
"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."
~~Ludwig von Mises
Much as I hate to admit it, Volcker was a Carter appointment and a wise one at that. Volcker also may have lost Carter the election.
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