The Fed cuts rates to 1.00% - the war on savers continues

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Fed cuts rates half-point, leaves door open for more

WASHINGTON (MarketWatch) - The Federal Reserve on Wednesday slashed overnight interest rates by a half-point to 1.0%, and signaled that downside risks to growth remain, indicating even more rate cuts could come.

In its statement, the Federal Open Market Committee said the pace of growth has slowed "markedly" and the extraordinary financial market stress could put the economy at greater risk. The Fed said that inflation was no longer a threat and that the central bank will cut rates as needed to boost the economy.

No real surprise here, but I will make a comment or two. The Fed, representing status quo interests, is desperately trying to recreate the exponential expansion of credit and debt that marked the last 2 decades (but really picked up steam from 2000 onwards).

Of course, one way to do this is to punish savers - you know, people who might choose to put money aside rather than spend it immediately on stuff.

This is the first thing that setting such a low rate does. It assures that anybody with money in a CD will pretty much be guaranteed to lose money. Better to spend it.

Second, the ultra-low rate rewards big banks who make their living by borrowing at a low rate (from the Fed and savers) and lending at a higher rate. So the rate cut is just a way to throw a bit more loot into the banking system at the expense of workers.

Remember, it was Alan Greenspan's 1% "blowout special" in 2003-2004 that led to this entire mess. Left completely unsaid in the article above (and all others) is how trying the same tactic again is going to deliver a different or better result.

Instead, we might just have to admit to ourselves that we are not going to be returning to the credit free-for-all that dominated the past few years. Which means that more than a few organization and financial institutions that built their operations around the perpetual expansion of credit may have to fold up shop or skinny down their operations. This includes government at all levels.

I think this rate cut is a mistake and that it signals weakness rather than strength. The Fed is rapidly shedding its patina of credibility.

This is a companion discussion topic for the original entry at https://peakprosperity.com/the-fed-cuts-rates-to-1-00-the-war-on-savers-continues-2/

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An article on the recent irrational market behavior caused by the Plunge Protection Team.

http://www.webofdebt.com/articles/manipulation.php

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I posted this under a different thread as well but this is an important read, especially the end of the article (I just posted the first few paragrpahs

http://www.financialsense.com/fsu/editorials/kirby/2008/1029.html

Just gets better and better. I haven’t read the entire article I stopped here.

Plumbing the Depths of Depravity

by Rob Kirby | October 29, 2008

Print

First, for a bit of historical context, a little bit of fact-finding pertaining to Henry Paulson, complements of my friend, Jesse:
“I didn’t know he was a member of the Nixon White House as his first ‘real job.’
In 1970, fresh from the Masters program of the Harvard Business School, Paulson entered the Nixon administration, working first as staff assistant to the assistant secretary of defense.
In 1972-73, Paulson worked as office assistant to John Erlichman,assistant to the president for domestic affairs. Erlichman was one of the key figures involved in organizing President Richard Nixon’s notorious "plumbers" unit that carried out illegal covert operations against the president’s political opponents, including espionage, blackmail, and revenge. Erlichman resigned in 1973, and in 1975 he was convicted of obstruction of justice, perjury, and conspiracy, and was imprisoned for 18 months.
Utilizing his connections, Paulson went to work for Goldman Sachs in 1974. In a 2007 feature, the British newspaper the Guardian wrote, "Not only was he well connected enough to get the job [in the Nixon White House], but well connected enough to resign in the thick of the Watergate scandal without ever getting caught up in the fallout. He went straight to Goldman back home in Illinois."

Birds of a Feather Fly Together: The Plumbers Live On in Infamy

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SCENES FROM THE ER, ACT 2008:

NURSE: But Dr Ben, you are prescribing the same medicine that made the patient vilolently ill!

DR BEN: Nurse, I’ve made up my mind so don’t confuse me with facts. Besides, his time I’m tweaking the dosage.

Nurse, inject the patient with 1/2 point of the elixir, pronto! And leave the bottle near the table.

 

 

 

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Good read on the Bailout’s "Dirty Little Secret"

 

http://www.informationclearinghouse.info/article21116.htm

 

Cheers!

 

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You can get a even cooler chart here.

 

Note that the real rate has been floating around 0.67% for some time now. This is because the Fed is not, and has not (since October) in control at this time. Thus, setting the rate to 1% is a joke. If anything, if this leads the Fed to regain control of the rates, it’ll actually increase the rate, not decrease it.

–

Steve

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Gentlemen, this is the tip of the iceberg. What most people cannot see is that the ensuing race to lower interest rates is going to be short term. With tax revenue tumbling and borrowing increasing at record rates, our Government will soon be completely insolvent. At this point it will be difficult in the extreme to pay the interest as "investors" will start to shun bond issues. In a panic to raise money bond prices will drop through the floor and yields will go through the roof. Interest rates will rise to 10,15,20 percent perhaps . If you think it can’t happen here, take off your blinkers. So at this point what happens to the housing market? You guessed it - implosion. We will see perhaps a 90 percent drop from its highs before this is over. We are heading into the largest deflationary depression in history and the meddling fools in government and regulation cannot stop it, only prolong it.
Thankfully it will be better for our kids, maybe grand kids. Hopefully war will not hit us too hard. Good luck and look after your family first.

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ajparrillo,

If true, it explains a lot! It certainly backs up my own feelings on the odd movements in Gold and day trading it (odd movements around 2 p.m. Lomdon time) - it does look, though, that the current movements are heading where it should be, i.e. upwards!

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[quote]What most people cannot see is that the ensuing race to lower interest rates is going to be short term.[/quote]

The Fed targer fund rate and bond interest rates are completely different things. In any case, the T-bond’s decent into lower and lower yeilds is a 30 year run –

 

I do, however, agree it will come up. The US has put out too much debt and too high a deficit for anything else to happen.

Our government has most likely been insolvent for a decade now. The word you are looking for is bankrupt.

The housing market can implode just fine on its own, thankyou very much.

[quote]We
are heading into the largest deflationary depression in history and the
meddling fools in government and regulation cannot stop it, only
prolong it. [/quote]

If/when bond prices crash, we won’t be having a deflationary depression. Recall what our currency is backed by – T-bonds. Once those crash, we’ll see enormous inflation. If this notion confuses you, I have a forum post you can read.

One of the lovely advantages of having an ocean to both the East and the West, and friendly non-militant nations to the North and South – plus the most absurdly powerful military, navy, and airforce in the world – is that the only kind of agressive war the USA needs to fear is the civil and nuclear kind.

–

Steve

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my calls have been pretty spot on in the currencies and my take on this rate drop is that it will temporarily move relative values but it doesn’t do much to change the situation that the US is still in better shape to handle financial stress than other countries. The movement of cash out of T-bills and the US due to a rate cut is dumb… it’s not like people were getting much anyways. The reason behind the strength in the USD was a flight to safety, not yield. That may be a different story in a place like Iceland where 18% bank rates gives you a reason to take on risk and while some may be tempted by such rates thinking of the 1970’s where in Canada we had similar rates, Iceland has a much less diversified economy. I think any recovery in the Euro, the AUD, or any of the baltic states for that matter, should be sold… they are in much more trouble in the short to medium term. A change in commodity prices might change all that but for now, I can only attempt to make calls a few months out… how people make or get paid to make calls for longer than a year, I have no idea how they do it.

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then I think you’ll see yet another move in currencies that could put further strain on the financial system.

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[quote]my calls have been pretty spot on in the currencies and my take on this
rate drop is that it will temporarily move relative values but it
doesn’t do much to change the situation that the US is still in better
shape to handle financial stress than other countries. [/quote]

This rate drop probably won’t do anything at all. The overnight lending rate has been, and remains, well under 1%. This has been almost continuous since October began. In essence, the Fed has lost control of this rate.

Wikipedia

[quote]For example, assume a particular U.S. depository institution, in the
normal course of business, issues a loan. This dispenses money and
reduces the bank’s reserves. If its reserve level falls below the
legally required minimum, it must add to its reserves to remain
compliant with Federal Reserve regulations. The bank can borrow the
requisite funds from another bank that has a surplus in its account
with the Fed. The interest rate that the borrowing bank pays to the
lending bank to borrow the funds is negotiated between the two banks,
and the weighted average of this rate across all such transactions is
the federal funds effective rate.[/quote]

The Fed target rate is an attempt to manipulate the effective rate. Nothing more, nothing less. T-bonds don’t enter into the equation.

Not really. The rapid strengthening of the USD was driven primarily by a demand spike created by deleveraging. This is, in many ways, very similar to the how the unwinding of Yen carry trade resulted in the massive strengthening of the Yen. The difference being the intent.

The dollars are needed to pay down dollar denominated debt (e.g. so that an institution may delever itself). So why only the dollar? Because dollar denominated debt is such a huge proportion of all debt. Thanks to the dollar being the reserve currency for so long.

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Steve

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My hats off to the posters above on this thread—one of the better on here in a while in my opinion…

My only comment on the rate cut would be that—even though we can all agree that their strategy is totally wrong—even from their own perspective–they are running out of bullets meaning their ability to delay the inevitable is one straw shorter…

 

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Running out of bullets? You are so kind. At this point I’d long since imagined Ben shouting Bang! Bang on the top of his lungs while he pulls the trigger. All the while internally praying that nobody will notice he ran out of bullets a long time ago.

Tongue out

Guess he isn’t doing too badly. There’s still plenty of people diving for cover at each shout!

–

Steve

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Steve–YES—you are right!!!

But let me say also with due respect—you are wrong—lets not forget—they ACTUALLY believe what they are doing is the right action(s)…they actually believe that IF they can manipulate the "growth" or perception of such, that they weather the storm…they have sooo many buttons to push and markets to manipulate–and counties ( eastern Europe ) to WORRY about–they are ;ike a grnadma finding out she needs to feed 27 people from the club whos over for dinner when she thought her son was bringing two friends…BUT—its ALL under control mind you…

and Chris…no financial refrerrals…? Is someone who you "begged" to listen to "THE CRASH COURSE" better than me to give sound financial guidance…??? JMHO—give A list–OR GIVE SOMEONE who is ON BOARD…Isn’t that what this site is about…???

…my apologies "begged"----is not the right or respectful word—but perhaps solicitated------explained-----convinced…proactively sought after…etc. etc…

Jerry—Personal Financial Rep.----The RIGHT way…Lets get that 401K etc. in the RIGHT products!!!

Perhaps my straight forwardsness is not always taken as "pleasable" as some would like—more a life comment than this site in peticular-there----BUT—THAT ___ IS --what you’ll get —complete coordination with what Chris"s message is…" preparing for being right ----is a MUCH less problem than preparing and being wrong ( AND 80+% your right anyway )

 

Lets prepare–not from someone who was "solicitated" BUT from SOMEONE ON BOARD HERE!!!

Jerry—PFR–Aligned–100% With Dr. Martensons’ message and outlook!!!

 

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I forgot to mention–"LIQUIOD–LQUIOD–LIQUIOD’ is the KEY—not 30 days —BuT 30 minutes…

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Sorry:

Are you all on crack?? You can cut rates to 0% , too bad we have already hit the iceberg and we don’t have enough life boats. Hope you have saved at least five years of income or you are Dicapprio going down!!!

                                                                                                nodebthere, bob
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It’s even cooler that the Fed is now lending $120 billion to Brazil, Mexico, South Korea, whomever. We may not be able to "change the world," as Obama said, but we’re sure going to FUND the world.

What the hell – with paper money, liquidity is unlimited. It would be selfish not to share the wealth.

Laughing ONE PERCENT FOREVER! Laughing

Money mouth PIMP MY HOUSE, BEN BABY! Money mouth

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[quote]t’s even cooler that the Fed is now lending $120 billion to Brazil,
Mexico, South Korea, whomever. We may not be able to "change the
world," as Obama said, but we’re sure going to FUND the world.
[/quote]

?

Fund the World?

We are just letting them temporarily cash in some of their currency for some of ours. This is nothing more than an attempt to address the huge dollar shortages that have been ravaging their economies. This actually has very little risk involved short of a complete blow up on the part of their currency.

Even then, a $1-10 billion dollar loss is a damn cheap way to earn points and maintain alliances. Especially when compared with our ‘$1 trillion Iraq invasion’ plan.

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Steve

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No manipulation here. None, nodda, zip.
Stocks open sharply higher after GDP report