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2008-12-15 Home Front Economy

Federal Reserve may cut interest rates to 0% soon

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Posted by Steve White 2008-12-15 00:00|| || Front Page|| [11137 views ] Top

#1 Maybe interest rates will go into negative territory. In other words, you get paid to take out a loan. Man, this is getting Twilight Zone...

Posted by Alaska Paul by the wood stove 2008-12-15 01:42|| 2008-12-15 01:42|| Front Page Top

#2 It's not the Twilight Zone, it's a rerun of desperation economics of the last century. Japan tried it after their real estate bubble burst in '90, the result was a lost decade which saw an 80% decline in the Nikkei.

I can't quite decide if what we're experiencing now will play out more like '90s Japan, '70s America or the Great Depression. There's an awful lot riding on the sanity of the next US Administration.

Posted by AzCat 2008-12-15 02:12|| 2008-12-15 02:12|| Front Page Top

#3 #1 Maybe interest rates will go into negative territory. In other words, you get paid to take out a loan.

The big NYC money changes are already there and are splitting up the profits among themselves.

Posted by Besoeker 2008-12-15 07:27|| 2008-12-15 07:27|| Front Page Top

#4 AzCat, I keep getting the feeling they will label this the mini-depression. Worse than the 1970s, but much better than the Great Depression. Expect 5 years of pain as the government flails around, making everything worse and the dues for all the credit the US has gets called in.

Posted by DarthVader 2008-12-15 07:51|| 2008-12-15 07:51|| Front Page Top

#5 Azcat nailed it with the Japan analogy. The Lost Decade depended on a society which had the idea that failing, falling down, and having to pick yourself up and rise again was so odious that nobody should ever have to do it. America did not used to have that as part of its meme set but it does now (hence "bailouts").

One of the solutions to the current crisis is to let the interest rates rise to the true cost of borrowing. Very painful on the short term, but it will greatly lessen the length of down times.

Which is why Obama and the Dems won't do it. They will do anything they can to prolong the pain and the perceived need for people to depend on government for income and essential services, just like they did in the 1930's. Count on it.

Posted by no mo uro 2008-12-15 08:10|| 2008-12-15 08:10|| Front Page Top

#6 Darth: I'll go in the other direction, and speculate that this will be relatively worse than the Great Depression, in some ways. From 1873-1896 was the "Long Depression", and the most serious depression before that rivaled the Great Depression, the "Panic of 1837."

Our current situation is beyond the means of the US government to resolve, though they don't know it yet, and is going to force major government and economic restructuring.

1) The US government is almost certainly facing bankruptcy. The frenzy of T-bill purchases has created a bubble far worse than the recent oil bubble, and when it collapses, the government will be limited to a balanced budget at a much lower level of tax revenues.

2) The real economy of goods and services will have to be segregated from the leverage economy, so that the latter can fail, which it must before the real economy can recover.

3) The economy will have to be "re-monetized", in several ways. Most credit will be gone for a decade or more, unless backed with 100%+ collateral. Virtual currency will have to be backed with physical paper (see 1837), for a long time.

4) The US will have to undergo a vigorous recreation of its industry, as most international trade will also be monetized. This will be paid for with agricultural exports in exchange for debt relief. "Buy American" will no longer be a choice.

Obama and company have very little flexibility in this situation. Two options: what they want to work vs. what pragmatically will work. The second half of his term will likely be better, with a Republican congress. This will depend on how fast the situation deteriorates after he takes office.

Posted by Anonymoose 2008-12-15 08:28|| 2008-12-15 08:28|| Front Page Top

#7 moose,

Any further reading available on the points you are making? I'm interested in learning more.

Posted by Hellfish 2008-12-15 08:55|| 2008-12-15 08:55|| Front Page Top

#8 It's looking more like looking into the abyss and the abyss looking back at you. The NYT front page is all doom and gloom. The article on the disability board is an eye opener.
Centro, a vegetable which has been on life support for the last 12 months is facing it's day of reckoning tomorrow morning. If it goes, 650 shopping centres across the US and 120 in Australia will go belly up ruining their retail operators.
It's becoming a tsunami of bad news.

Posted by tipper 2008-12-15 09:09|| 2008-12-15 09:09|| Front Page Top

#9 Time to run to the bank to beat the bankrun. Then to your shelters, men! Canned foods! Bottled water! At least until the 'real' economy sparates itself from the 'leveraged' economy. Whateverthehell that means.

It's new. I'm scared. Panic! Run!

Posted by Mike N. 2008-12-15 09:33|| 2008-12-15 09:33|| Front Page Top

#10 The returns are already negative when you factor in inflation and your tax liability.
People still aren't putting money into the private sector, and I don't blame them. Who can ya trust?

Posted by bigjim-ky 2008-12-15 10:00|| 2008-12-15 10:00|| Front Page Top

#11 Moose, excellent commentary.

You left out the other bubble which must burst, that of the education industry. It's on tenterhooks for two reasons - first and foremost, it does not provide value (usually) relative to its cost, and secondly it is heavily propped up by government subsidy.

I don't NEED a women's English lit major or a Latino studies major. I NEED a receptionist or an electtrician - neither unionized. In the end that will do in the overvalued, overpaid, overpowerful, and undercompetent education industry as it exists today.

Mike N. - put the amphetamines down and move away slowly.

Posted by no mo uro 2008-12-15 11:08|| 2008-12-15 11:08|| Front Page Top

#12 Panic of 1857

Posted by Bright Pebbles 2008-12-15 11:21|| 2008-12-15 11:21|| Front Page Top

#13 Its all based on trust.

If you can't trust a vehicle is worth the price, why buy it?

If you can't trust government to stay out your retirement fund, why IRA/401K?

If you can't trust Wall Street, why invest?

If you can't expect to make interest on money investments, why invest?

Why buy bonds if the payment will be defaulted?

If you can't trust a babysitter, why give them your kids?

I can see a reason ~why~ to do this, people who lost their job and home to crappy business dealings can be very angry and may start pointing fingers, or worse. But this is not the long term solution IMHO. I may or may not like a reconstruction but I do not trust what is going on right now. The bottom falls out of gas prices so gov is going to raise gas tax and institute a cow fart tax to make up lost tax - and people complain about oil and shipping companies not dropping prices after an increase geemoneez.

Posted by swksvolFF 2008-12-15 11:51|| 2008-12-15 11:51|| Front Page Top

#14 Shutter the winnders! Gussy up the spider holes! Dig in, men! Its gonna be a long winter!

This is the end, my only friend, the end.

Posted by Mike N. 2008-12-15 12:04|| 2008-12-15 12:04|| Front Page Top

#15 You cannot push a rope.

Posted by Zenobia Snusing9687 2008-12-15 15:05|| 2008-12-15 15:05|| Front Page Top

#16 Oh yeah, negative interest. Pay ME to take your money...

Posted by mojo">mojo 2008-12-15 15:11|| 2008-12-15 15:11|| Front Page Top

#17 Comment on CNBC this morning to the effect that for the rest of the world, even at zero percent US government bonds/bills have an effective positive return because the other currencies (or perhaps it was economies) are depreciating faster than ours, a situation expected to continue for quite some time.

Posted by trailing wife">trailing wife 2008-12-15 16:02|| 2008-12-15 16:02|| Front Page Top

#18 History will call it the Great Deflation.

There are several other shoes waiting to drop. One is a collapse in international trade as countries no longer trust each others currencies in the same way banks no longer trusted each others paper triggering the initial crisis. Unlikely as it sounds, we may go to a system of barter and payment in gold for international trade.

Posted by phil_b 2008-12-15 16:14|| 2008-12-15 16:14|| Front Page Top

#19 There's an awful lot riding on the sanity of the next US Administration.

Sanity in Zero's administration?

We're fucked.

Posted by Rednek Jim 2008-12-15 18:20|| 2008-12-15 18:20|| Front Page Top

#20 Any further reading available on the points you are making? I'm interested in learning more.

Indeed anything on that? Or is from the usual Whole Cloth Textile Mill?

By the way, Cloth Carries Burd Flu so be careful

Posted by .5MT 2008-12-15 19:11|| www.cybernations.net]">[www.cybernations.net] 2008-12-15 19:11|| Front Page Top

#21 The US will have to undergo a vigorous recreation of its industry, as most international trade will also be monetized. This will be paid for with agricultural exports in exchange for debt relief.

Don't look now moose but the carbon tax & Pickens Plan will make something like 1/3 to 1/2 of US farmland economically unproductive as input prices spike while farm commodities lag. Farm exports are going to tank under the burden of the forthcoming environmental regulations.

Posted by AzCat 2008-12-15 21:41|| 2008-12-15 21:41|| Front Page Top

#22 The US will have to undergo a vigorous recreation of its industry

The enviro-marxists will just sit quietly by and allow this to proceed?

Posted by eLarson 2008-12-15 21:48|| 2008-12-15 21:48|| Front Page Top

#23 Since Obama intends to shut down the coal industry, I guess we can forget about re-industrialization or, for that matter, electricity.

Posted by ed 2008-12-15 22:01|| 2008-12-15 22:01|| Front Page Top

#24 And steel-making.

Posted by eLarson 2008-12-15 22:57|| 2008-12-15 22:57|| Front Page Top

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