Tuesday, January 22, 2008

Bernanke, Ridin' That Train, Lowers Rate 75 Basis Points

"Ridin' that train. High on cocaine. Casey Jones you better, watch your speed. Trouble ahead; trouble behind. And you know that notion, just crossed my mind."--The Grateful Dead

Money News on Newsmax reports that the Fed has lowered interest rates 75 basis points (from 4.25 to 3.5 percent), "the biggest one day move in recent memory".

Gold stocks continue to perform well, but at 11:40 the Dow is down 138 points to 11961, the S&P 500 is down 23 points to 1302 and the Nasdaq is down 55 points to 2285.

The Fed is concerned is concerned about recession fears and the recent sharp stock market declines. The interest rate cuts should boost stock values but will also continue to depreciate the dollar. The Fed reduces interest rates by printing money. Lower interest rates enable unproductive firms to remain in business because their costs of borrowing are reduced. Firms that do not create a market-determined value that would enable them to exist are subsidized by increasing the money supply, which reduces wage earners' inflation-adjust salaries. Thus, the Fed is taxing the productive sectors of the economy to subsidize the unproductive ones. The unproductive sectors are centered on big business, the financial sector and Wall Street, who have (1) extracted excessive CEO and investment banker salaries; (2) repeatedly made terminally stupid business decisions; and (3) and now go to the Federal Reserve welfare trough for a bail out.

Meanwhile, the dollar will depreciate and inflation will escalate.

Although the markets are cool now, they likely will heat up in response to the reduced rates, but the response will be temporary.

1 comment:

Anonymous said...

Sorry for off topic, but 2012 is close, is this really matter?