EARTH TO BERNANKE: CUT RATES NOW!!! HELLO???

[unblock]

even the 3-year treasury is now yielding 1.66%, well BELOW the fed funds target of 2.0%.

http://www.bloomberg.com/markets/rates/

you cannot seriously be worried about inflation in this environment, how can you have inflation if money isn't circulating.

DROP THE FED FUNDS TARGET TO 1.0% IMMEDIATELY, AND THEN TO ZERO BY THE END OF THE YEAR!!!


it would be ideal if this were coordinated with other central banks so that currency markets aren't seriously affected, but even if other countries don't play along, fed funds are obviously way too high.

NO, this is not the magic elixir and it won't cure all overnight, but do you really want history to blame you for keeping rates too high in this crisis???

[gravity]

1. They want to cordinate it with Europe

It is a global crisis

[CountAllVotes]

2. it will not fix a damn thing

they did this before and look where we are now - nowhere - going down fast.

[still_one]

4. Yes and no. First, it is psychological. Second it will help those with adjustables

but as far as new loans or more liquidity, I agree, it won't do anything

[Newshues]

7. adjustables are comonly set to libor

won't help.

[unblock]

10. not all; many are set to treasuries; besides, a rate cut here impacts libor

especially if it is matched with cuts internationally.

[CountAllVotes]

28. it does nothing for savers

and does nothing to encourage people to tie up their money in these types of investments. :think: about that for a second given the lack of "liquidity" ... i.e. cash in the market.

:kick:

[unblock]

5. they haven't cut since APRIL! that's madness!

yes they're injecting liquidity in other ways, but the fed funds target has a big impact both in actuality and psychologically.

[msallied]

3. Your last sentence pretty much said it. It probably won't work.

But symbolically, he should drop the damn rates.

[DJ13]

6. Cutting rates is ineffective when the banks dont pass it on into loans

The EU needs to cut rates to be closer to ours, but reducing our rates wont improve our economy as long as banks arent making loans, and the lower rates arent filtering through into lower loan interest rates.

[unblock]

9. true, but 200 more bps is that much more incentive to lend

i agree that it won't help overnight, but this allows banks that do lend to earn that much more profit when they do. eventually, greed will overcome fear. dropping the rates by an eventual 200 bps just makes the lending restart that much sooner.

[DJ13]

11. If banks arent loaning with rates already lower than inflation

They wont be inclined to loan with an additional 1/2% cut.

[johnaries]

23. EXACTLY! Which is what the bail-out bill was actually trying to address. nt

[Newshues]

8. advocating for a Japanese style "Lost Decade"? n/t

[unblock]

12. japan could hardly have avoided their situation with HIGHER interest rates!

zero interest rates was a symptom, not a cause, of their predicament.

[krawhitham]

13. The rates are low enough

[unblock]

14. hardly. in fact, even the market is rather convinced the fed will cut at the next meeting

http://www.clevelandfed.org/Research/data/Fedfunds/index.cfm

they're not as gung-ho as i am for a cut, but then again, these charts are as of friday.
the chart's hard to read, but i see it predicting a more than 75% chance of a cut at the next meeting.

[Raineyb]

17. Frankly they should probably go up

Constantly lowering rates to make money cheaper is part of the reason why we're in this mess in the first place.

Not that I expect it to go up anytime soon. Really less than 1/2 of one percent on a savings account is sheer fuckery.

Regards

[unblock]

18. jeez, a rate hike would kill whatever is left of the economy!

[Raineyb]

29. What part of too easy credit did you not understand?

The constant lowering of the interest rate is part of the problem, not the solution. Do you really think an interest rate of 0 is going to help anything? It's nearly as low as it can go and the banks still aren't lending. Why are you penalizing the few people who actually save their money. Every time the Fed lowers interest rates the rate on your savings account drops even lower. .25% interest on a savings account is not acceptable let's not even go into how it's not going to keep up with inflation.

Regards

[unblock]

30. what part of too tight credit caused the great contraction do you not understand?

yes, interest rates too low too long helped to get us into this mess.

that doesn't mean that keeping interest rates too high right now is a solution to anything. nor does it mean that i'm advocating keeping interest rates low for very long.

let's get the credit markets functioning again, then we can worry about other things like inflation.

inflation won't be an issue if the economy's at a standstill.

[Raineyb]

31. It's already too damn low

So since you're against raising it I guess you are advocating keeping interest rates low for very long since it's been too low for years

Regards

[unblock]

32. i don't know who you think you're arguing against, but it's not me

because you keep talking about positions i don't hold. i already said that rates were too low for too long.

[Raineyb]

33. Then why are you arguing for yet another rate cut? n/t

Regards

[unblock]

34. because rates are too high NOW

you have to look at the data and the environment. when greenspan kept rates really low, the economy was basically fine, he should not have kept rates so low so long. there are many factors, but when the economy is basically fine, rates should be not be low. right now, the economy is at a standstill, rates need to be low as one ingredient to getting things going again. once the economy starts moving again, rates can come back up.

right now, rates are too high. to the point where longer maturities are yielding far less than fed funds!

[LittleBlue]

15. They should, but it won't make any difference

Interbank lending has come to a halt. The Fed sets the discount rate, which will have little to no impact except psychologically.

[unblock]

16. ah, but psychology is so important these days!

besides, sooner or later low rates will help.

[neverforget]

19. Isn't this how we got into this mess? Cheap credit?

:shrug:

[unblock]

21. yes and no.

cheap credit is at the root of some of the problems, but the current freeze-up is due to everyone over-reacting and tightening too much. now credit is way too tight. investment-grade companies are being turned away! we need to find a middle ground.

[uponit7771]

26. No, UNREGULATED cheap credit is how we got into this mess, then dumb ass'd banks didn't price them

...correctly due to "moodies" and S&P giving their securities good ratings

[girl gone mad]

20. I'm kinda surprised it hasn't happened yet.

I still think we'll see 0% before this is through.

[johnaries]

22. THIS was the problem the bail-out was trying to address.

Even though the fed has cut the rates, short term business loans were trading at 10% !

This is what the bail-out was all about, NOT the Stock Market.

[johnaries]

24. OK, after reading today's business news

they are saying that commercial paper is still tight, and it may take another cut by the fed to help free them up. Although I still don't see what good it will do if the market prices are higher.

[uponit7771]

25. Right, then gas will go to 34756 dollars a gallon on deflated dollar value

[unblock]

27. what's going on now trumps everything. the dollar is surging too much

it immediately hurts exports, the one part of our economy that's doing well.

yes, the recovering dollar is helping pull oil back down to earth, but concerns about a severe recession are actually more to blame.

gas is not going to skyrocket as long as everyone thinks the economy's tanking. if it DOES skyrocket, then maybe the economy's not so bad and the fed can back off a bit.

[Ganja Ninja]

35. They're afraid to cut rates because it's all they got left.

If they do that and it still doesn't work then the markets could react badly as in a total flat line. The whole shooting match would be over. They don't want that to happen 4 weeks before the election.

[unblock]

36. THANKS BEN!!!!

50 bps is better than nothing.

:hi:

[regnaD kciN]

38. It seems to have helped, at least temporarily...

Now, let's all hope things can hold together until 1/21/09.

[unblock]

39. first i'll just hope things can hold together until this afternoon.

good news has a way of evaporating quickly these days....

[BumRushDaShow]

37. Done. n/t

The Dow is just over 300 points away from having had a Depression-matching 35% drop and that 300 point drop would have been do-able today. The interest rate cut might help stave it off initially but we'll see.