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| Home Front Economy | |
| Danger, Will Robinson | |
| 2009-03-18 | |
| The U.S. Federal Reserve announced Wednesday it will spend up to US$300 billion over the next six months to buy long-term government bonds, a new step aimed at lifting the country out of recession by lowering rates on mortgages and other consumer debt. At the same time, the Fed left a key short-term bank lending rate at a record low of between zero and 0.25 per cent. Economists predict the Fed will hold the rate in that zone for the rest of this year and for most - if not all - of next year. Fed purchases should boost Treasury prices and drive down their rates. That would ripple through and lower rates on other kinds of debt. The last time the Fed set out to influence long-term interest rates was during the 1960s with Operation Twist, conceived by the Kennedy administration.
"This is not only going to keep mortgage rates low for a long period of time," said Greg McBride, a senior financial analyst at Bankrate.com. "The mere announcement may produce a honeymoon effect and bring mortgage rates down to even lower levels in the coming days." In addition, the Fed said a $1-trillion program to jump-start consumer and small business lending could be expanded to include other financial assets. The program - which is rolling out this week - currently is focused on spurring lending for autos, education, credit cards and loans for business equipment. The government already has announced an expansion to include commercial real-estate assets. Any broadening of the program would be beyond that area. Fed chairman Ben Bernanke and his colleagues are taking the new steps as the economy sinks deeper into recession. Since the Fed last met in late January, "the economy continues to contract," the policy-makers observed. "Job losses, declining equity and housing wealth and tight credit conditions have weighed on consumer sentiment and spending," they said. Businesses, meanwhile, are facing weaker sales prospects and credit troubles have them cutting inventories. Problems overseas have crimped demand for U.S. exports, dealing domestic companies another blow, the Fed said. Across the Atlantic, the Bank of England last week began buying government bonds from financial institutions as it turned to other ways to help revive Britain's moribund economy. The Bank of England, like the Fed, already had lowered its key interest rate to a record low of 0.5 per cent. Finance leaders from top economies have discussed co-ordinating actions from their governments and central banks to provide a more potent punch against the global financial crisis. Still, the Fed hoped its actions, the government's banking rescue effort, and President Barack Obama's $787-billion stimulus of increased government spending and tax cuts eventually will help revive the economy. "Although the near-term economic outlook is weak, the committee anticipates that policy actions .... will contribute to a gradual resumption of sustainable economic growth," the Fed said. Obama has urged Americans to be patient, saying it will take time for his revival programs to work. Bernanke has repeatedly said that stabilizing America's financial system is key to turning around the economy. If that can be done, then the recession might end this year, setting the stage for a recovery next year, he said. But even in this best-case scenario, the nation's unemployment rate - now at quarter-century peak of 8.1 per cent - will keep climbing. Some economists think it will hit 10 per cent by the end of this year. The recession that began in December And the economy is still sinking. It contracted at 6.2 per cent in the final three months of 2008, also the worst showing in a quarter-century. Analysts believe the economy in the current January-March quarter is contracting at a pace between 5.5 and six per cent or more. They expect the economy also will continue to contract in the April-June quarter. | |
| Posted by:Anonymoose |
| #7 They are printing to counter falling money velocity. I do know what I'm talking about. |
| Posted by: Bright Pebbles the flatulent 2009-03-18 23:23 |
| #6 Now government must choose - either put a stop to The Bezzle, here and now, or watch the market dismantle it piece by piece, firm by firm, and deal with the collateral damage - another 10-20 million unemployed (at minimum) and a Depression worse than the 1930s." I believe they understand that all too clearly. |
| Posted by: Trader_DFW at work. 2009-03-18 21:47 |
| #5 Neither taxes nor the velocity of money is the issue here. It's the "bezzle," first defined by John K. Galbraith. Google it. Some examples, courtesy of Karl Denninger: "== Liar loans: The borrower can't possibly pay off the loan on the original agreed terms and the institution that makes the loan "passes it" to an investor fully aware that the borrower almost certainly lied about credit capacity. ==Overly-rosy projections about growth in property values: The speaker is either incompetent (doesn't understand exponents - a fundamental mathematical concept) or is intentionally deceiving people. == Overly-rosy projections about the stock market: "The market always comes back" and "over long periods of time it outperforms other investments." Both true, but both misleading; if you're 18 you might be able to wait for it to come back, but the market has remained flat to down from a given level for more than 20 years before. How long did you say it was before you intended to retire? -----In short The Bezzle is "the lie" that is always present in business. The truth is always some degree of lying in business transactions - always has been, always will be. And so long as The Bezzle doesn't become the underlying theme in business, it simply bankrupts the people who try to run it when they get discovered. But when The Bezzle becomes the underlying premise and basis for business transactions that entire segment of the market is doomed. Eventually the embezzled discover the fraud, and they get angry that the embezzlers stole their money. They revolt in whatever way they are able - if there is no law that gives them recourse and no government support for outing the bad actors they either turn to lawless actions or simply withdraw from the marketplace, refusing to continue to be a victim of someone else's grand scheme of theft... President Obama has ratified The Bezzle instead of working to put a stop to it, and as such he both owns and is responsible for the continuation of the slide in the markets since the election...Government is not responsible for the fraud, but it is responsible for turning its head and refusing to look, investigate and prosecute. Government profited from the increased tax revenue and "fake wealth" that was "created" as a consequence of The Bezzle, and the campaign bribes, er, contributions that flowed from it. Now government must choose - either put a stop to The Bezzle, here and now, or watch the market dismantle it piece by piece, firm by firm, and deal with the collateral damage - another 10-20 million unemployed (at minimum) and a Depression worse than the 1930s." |
| Posted by: Anguper Hupomosing9418 2009-03-18 21:37 |
| #4 IIRC, JFK did, Valentine. Of course, he's the last Dem to call for tax cuts to stimulate the economy.... |
| Posted by: Barbara Skolaut 2009-03-18 21:10 |
| #3 Looters always rob the productive until there is nothing left to steal. Obama, The shop is bare. Stop stealing. |
| Posted by: Bright Pebbles the flatulent 2009-03-18 21:03 |
| #2 Wont happen ever with Donks in the exec and congress. I don't believe there has EVER been a time where a donk has been in favor of LOWER taxes on the top earners or money makers including businesses. |
| Posted by: Valentine 2009-03-18 21:01 |
| #1 Money represents the economy. The best way to raise money velocity is to cut taxes on employment and productive work (i.e. Income taxes, Corporation Taxes, Sales Taxes). |
| Posted by: Bright Pebbles the flatulent 2009-03-18 17:34 |