Thursday, October 2, 2008

Fed considering new rate cuts


This wasn't obvious?

New data since September changed their mind? What planet are they on? Oh that's right-the same planet as Trichet, who felt that a "clear separation" between monetary policy and liquidity management was needed. The market will finally force his hand also.

That's right. They have been targeting who needs money, because rate cuts are such a blunt instrument. So now, they finally leak to the WSJ that they are changing their mind. It's not liquidity, it's solvency! How about that mantra? Doesn't liquidity help solvency? Why didn't they react on September 16, on their last meeting?

So what data, in the last two weeks have magically caught their eye? Oh that's right. They were worrying about inflation two weeks ago, after oil had already been crushed 50%, along with every other commodity prices and every commodity equity!

Federal Reserve officials are weighing further interest-rate cuts, even if Congress passes a $700 billion rescue plan, in the face of a deteriorating economic outlook and severely strained financial conditions.

The Fed's willingness to consider additional cuts marks a turnaround from the past few months, when soaring food and energy prices turned its attention to inflation risks. At a regular September meeting, after oil prices had receded, officials still declined to move the central bank's federal-funds target rate from 2%.

I suppose when the President and Treasury Secretary tells the world that the financial system is in "grave" danger, when companies come begging to Warren Buffett for help, and he says the economy is "flat on the floor" and "In my adult lifetime I don't think I've ever seen people as fearful, economically, as they are now" that finally, with this preponderance of evidence now a light bulb as gone off with the Fed?

So now the Fed is weighing and willing.

I suppose that's why it's taking so long. If they were literally on another planet, then they could use the excuse of an erroneous scale.

But to only recognize these problems, when they are of such scale and magnitude and obviousness, means that the Fed is not only the lender of last resort, but the last to recognize deflation. Even Time magazine got it. Remember how the "stimulus" plan was going to save the economy? The $600 check that was supposed to offset the 30% off of the value of your house?

Time had this to say in March:

Americans simply don't have enough money to pay back the mortgage and credit-card debt they've run up. That reality is forcing banks to retrench as loans gone bad shrink their capital bases and falling house prices shrink the collateral that homeowners can borrow against. And it will presumably force chastened consumers to change their ways as well. At least that's what Rosenberg is predicting. "It's an entirely new attitude toward debt," he says. "It is the new four-letter word.",28804,1720049_1720050_1721656,00.html

Now we are going to see how much money the Fed has!

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