Dec 14 2008
While Fed mulls cutting interest rates, I mull cutting Fed
Today the Federal Reserve announced it is planning on slashing interest rates yet again in an effort to counter the world-wide recession. The Fed has already cut the Federal Fund Rate, it’s best tool to effect the economy, to 1%, a level reached only once before in the last 50 years.
Most economists think more cuts are on the way and predict the Federal Reserve will cut that rate in half, possibly even more, while trying to bolster the ailing economy.
The Fed has been cutting interest rates for a year now in an effort to battle this recession. Before that they were doing it to keep the economy booming and that led to this recession. Why is it that they keep doing this?
I guess I’ll get to my point here. There isn’t a lot more room for the Federal Reserve to cut rates anymore. They can only bring down that one percent interest rate to zero, and most economists agree that banks would only be able to drop their rates so far if this happens (the rate stands at 4% now and would likely drop at maximum to 3%).
Barring that, the Federal Reserve doesn’t have too many more options. They could buy mass amounts of longer-term securities on the open market in order to get a lower rate on the securities and theoretically increase lending. Another option would include congress giving the Federal Reserve even more power by allowing it to issue it’s own debt.
And that debt is rising. In an attempt to spur the economy using the powers given to it by the financial bailout the Federal Reserve has invested in numerous programs. This investment has come at a costly expense though (hence the need for all of our tax returns from last year). The Fed’s balance sheet has skyrocketed and will likely keep going up, from $900 billion in September to over $2.2 trillion and growing now. And for all this spending what do we have to show?
Since the start of the recession, the economy has shed nearly 2 million jobs. Analysts predict another 3 million more will be lost between now and the spring of 2010. America has learned a costly lesson that when you spend money you don’t have (credit or debt, whatever you want to call it) you’re going to get burned. Apparently the Federal Reserve didn’t get that memo.
But then again since the Federal Reserve supports the debt-based monetary system that we run, debt isn’t considered to be a bad thing for them.
Folks, these are private bankers. Billions of dollars mean nothing to them. This economic recession, which was years in the making and had plenty of warning signs, means nothing to them. If anything it seems like it’s turned into a huge spending spree with no limitations. They’ve literally managed to create money for themselves, out of thin air.
I guess I just don’t buy it anymore. I refuse to believe that the way to solve the problem of spending too much money that you don’t have is to spend even more money that you don’t have. Obviously, it’s not working anyways. How long are we supposed to continue to prop up these faulty institutions at the expense of the American people?
How about we talk about a real solution. How about we talk about cutting our nation’s reliance on debt, starting with the government. It’s time that we start expecting our representatives in Washington to act with the national checkbook as we do with our family checkbooks.
Because the fact is, we owe a lot of money to China. In fact we owe a lot of money all around. As of November 18th, the list looked like this-
China - $585 billion
Japan - $573.2 billion
UK - $338.4 billion
Carribean - $185.3 billion
Oil Exporters - $182.2 billion
Brazil - $141.9 billion
Luxembourg - $91.8 billion
Russia - $69.7 billion
Hong Kong - $60.9 billion
Norway - $52.2 billion
Switzerland - $49 billion
Germany - $41.4 billion
Korea - $36.1 billion
Mexico - $34.2 billion
Turkey - $31.3 billion
That list goes on and on too. Now this debt, 10.2 trillion or whatnot and rising, is going to have to be paid. This is not an imaginary thing, and if this recession hurts us enough, then we might not emerge out of this as the top dog anymore. This is something we need to think about. This is something our politicians should be thinking about.
We’ve learned what happens when you rely too much on credit, you end up getting burnt. If this latest case of it produced this recession, what would happen if these countries cut lending with us, much like banks cut lending with consumers? The results would be drastic. We need to start thinking about real solutions to cut down our debt, sooner rather than later.
Without having to go through an economic lesson with you on this, your ideas are…well they aren’t completely economically sound. The problem in the economy will always be gov’t involvement but you can’t fix that because big companies, like GM and AIG, ask and pay for it…and then they get it.
The interest rate has to come down in order to increase investment in the market so we can reach equilibrium value, which is the goal.
As for the Debt. I don’t really don’t know how to explain it more then going into my personal belief on how to fix the majority of our social issues in this country. We spend more then we bring in for taxes and we are always creating more debt.
They can’t lower it much more though. My point is that what the fed is doing, has been doing for a while now, isn’t helping. We can’t lower the interest rate that much more and economists have admitted that it likely won’t increase lending.
It couldn’t hurt to at least examine a different solution, rather than doing the same thing we’ve been doing over and over again, expecting different results.
I would agree with you 6 months ago when we were about to enter into a depression. The Interest rate is not the source for faulty house loans, it’s poor management. It’s not the source for GM going out business, it’s bad management. The interest rate being lowered when we were in an expansion a year ago was a mistake. This was because greedy men were trying to make more money then was to be made and lead to inflation of the markets and then a burst and now a recession.
There is more to the story then just lowering and hiring interest rates. As for what they are doing right now, lowering the interest rates is the best policy. It’s almost a sure fire way to get people investing money again.
I noticed that India is not on the list and BTW, it is one of the only countries not shaken by the recession
A good observation indeed.
yes sir i hv recieved ur mail jst gv me sm tym.my exams is gong on aftr exam i m definately do it…
What actually caused the Great Depression of the dirty 30s was NOT the 1929 stock market crash. That was just the “smoke screen” that the PTB(powers that be) needed to start contracting the money supply. When they had removed enough phoney-baloney currency from the people’s hands … well we all know our history … right? … yea right! But that is a topic for another blog!