Tuesday, Sep 18, 2007
Very good appraisal of the FEDs mad decision.
Bloomberg: Rogers, Faber Say Fed Rate Cuts Will Spur a Recession
Interest rate cuts by Federal Reserve Chairman Ben S. Bernanke will spur inflation, cause the U.S. dollar to collapse and push the world's largest economy into recession, investors Jim Rogers and Marc Faber said. ``Every time the Fed turns around to save its friends on Wall Street, it makes the situation worse,''
Posted by tyrellcorporation @ 08:25 PM (1429 views) Add Comment
33 Comments
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1. geed said...
cheap credit got us into this mess, so obviously, cheap credit is going to get us out of this mess.
Please explain the logic as I haven't a clue myself?
2. Onyerhike said...
I was asking myself the same question. Are the Americas supposed to go out now and run up some more debt on cheap credit buying more and more and more until they can't pay it back and then there is a credit cr....... wait a minute ... I am having an attack of deja vu.
3. robh said...
See the BBC article further down the list
'Analysts' explain that "By making money cheaper to borrow, people can spend and invest more, revitalising the economy"
The analysts don't explain how the economy needs revitalising though, given that people have been spending so much already
4. alan said...
I think the analysts only expected a 0.25% reduction, and were caught off-guard. I said the Fed would make a big cut weeks ago. The dollar's exchange rate drop is also partly due to cyclical events like the drop in jobs and Trichet hinting that the Euro IRs may rise. However, these events are only a part of the problem.
The bigger part is that investors are funding a mega current account defecit, and are becoming increasingly unhappy to hold dollars. Expect the Chinese to buy assets in Africa and S America and pay in dollars.
That said, the dollar has fallen 20% in 5 years (since 2002), so perhaps that's enough for now?
5. Onyerhike said...
Is this not just an indicator of the bad state of the US economy ? Isn't there a danger to that the dollar will be sold off quicker than a BTL property in negative equity ?
6. enuii said...
This is the same as printing money, only hidden away so as not to be blindingly obvious, it will be a 21st century electronic version of the 1930's.
More credit please anyone, fancy a new VW Touareg or a Misibitsi L200 pickup the good times are here again, everyone thinks short term nowadays so forget your future security and enjoy a good financial blow-out while you can.
7. Alan said...
the only guys whinging are the ones that cant afford houses and are moaning now.
8. david20040_0 said...
Wait a min, I seriously don;t understand?
Will slashing rates cut the boom?
9. deepak said...
Can some one add some more to the articles about this .50% cut.
How will it effect UK economy? Inflation? Jobs? and is it a respite for much awaited House Price crash is UK?
What I'm asking can we have some good analysis of the consequences of this rate cut..
Thanks
10. david20040_0 said...
I don't get it?
By slashing rates surely by people getting more money and further into debt this is just saving the problem for another day? No?
11. whiteknight said...
As expected we are now purely in the currency part of the board tidying up with the last moves before the "mighty" FED gets the smack down.
People inside the US tend to the think that this FED trick is almost perpetual in its capability to be played. People outside the US do not have this fundamental logical calculation flaw.
It will be embarrassing in 3 moves time when they have twice back in the other direction or more.
12. david20040_0 said...
Wait up.
This is top news story on BBC.
Slashing rates to 4.75%, is this not just going to further fuel people to borrow more and get further into debt? Surely this is nuts.
I expect the BoE and Blanchflower to cuts rates here now and then the 2005 cutting rates scenario will start over again with house prices inflation picking up.
This situation is maddening!!!!!!!!!!!!!
13. Tartaglia said...
Jim Rogers is always good value
14. su said...
David. In the absence of any handy anti-depressants, I'm going to look out "Bat out of Hell" CD and sing along until I've worked it all out of my system. It normally works a treat!
15. d'oh said...
Why have a little pain today, when you can have a whole lot more tomorrow. I despair.
16. The Calculator said...
Are we taking a far too simplistic view.
Big Ben has privy to what is really happening to the Global banking system and the fact that he has cut to the tune of 0.5 % can only mean that we are deeper in the *&%^$ than any news site is daring enough to print.
Dont expect a boom over the pond. There is no more money to be dished out .... also the appetite for debt may be waning.
Also, have a think about what Darling did last night. he only bailed out the Crock because he knew if he did nothing then the run would be on the Alliance or Bradford. by tomorrow
17. david20040_0 said...
No seriously this is nuts. It is just liek back in 2005 when the housing market was slowing then the BoE cut rates and it all took off again.
US and UK Government will do anything to keep this going.
18. whiteknight said...
Lets just wait a moment. Time to be a little patient again. But nothing like on hold. Things are moving forward at a rate of knots.
What we have seen in the last few weeks and what will now happen:
The Wizard of Oz's curtain just got blown back and everybody saw that it was a wizened old man operating a pair of bellows and holding a megaphone.
Now will come the real assessment and the repatriation of those big foreign based dollar asset holdings and once it starts - its a race. Pure and simple.
The FED has already acted, so once we get into this situation again (very , very shortly - weekly timescales) their will be no holding effect.
19. deepak said...
Looking at some news online. What is the impact of this rate cut
1) Dollar has fallen 1-2% against major currencies. As US buys more than its sell (around US$ 800 billion deficit each of the past two years) this will mean more dollars to be paid for buying the same goods. So in order to consume the same you have to pay more. Which means higher inflation.
2) There are almost 2.5 million mortgages in US coming for review (as in the UK) which will still be higher maybe not as higher as it could be but this will also lead to foreclosures. Aug 07 saw record foreclosures.
3) Temporary bailout for some. hence creating bigger bubble waiting to burst.
Now affecting the UK.
These investors will take there money out of US$ and invest in UK£ as its returns will give them higher return. So I'm not that bearish about UK house prices as I was only a few hours ago. Sad. Sad. Sad.
The only respite will be the remortgaging of millions of mortgages in the next year..
20. su said...
I like this:
Give us grace to accept with serenity the things that cannot be changed,
Courage to change the things which should be changed,
And the wisdom to distinguish the one from the other.
(Serenity Prayer, thought to have been written by Reinhold Niebuhr.)
Probably works better than "Bat out of hell"
21. deepak said...
This is disgraceful. Can we have some analysis please rather than emotion.
Thanks
22. Given_up_on_the_uk said...
I've been following this site for over 6 months and its fair to say that the leaders in the UK and USA are nuts, a debt-based economy is surely one doomed to fail.
Personally I think it's time to set plans to follow 200,000 hard-working Brits that quit this cess-pit of a Country each year and leave it to the illegal immigrants who will no doubt get amnesty for laying low for 10 years.
The BoE have offered to bail out wreckless lenders, lowering interest rates (it seems thats next) will help bail out wreckless borrowers.
Whats the point of sticking around, I'm not going to commit financial suicide and borrow 5-6 times my salary for a shabby house and spend the rest of my life as a slave to the debt, far better to go overseas where tennants get much better deals and with a more laid back lifestyle and hopefully a more competent government.
Good luck to those of you trying to stick it out here in the UK, I hope you eventually get to purchase a home at an affordable price.
23. su said...
Sorry Deepak, your "Sad. Sad. Sad" is kinda catching.
24. david20040_0 said...
Great so the USA crashes while the UK then booms again like 2005. Great not! :(
25. Ihopeitgoeswithabang said...
lol That guys pic reminds me soo much of the film Trading Places with Eddy Murphy ...lol
Those frantic share dealing scenes lol insider trading, dodgy deals .... no change there then.
26. tyrellcorporation said...
David, We could see another rally and a boost to the UK housing market again (much like 2005). The cheap credit drug is a hard habit to kick and the politicians will pile the pressure onto the central banks to keep the carousel turning. Read this article again though and you'll see that the fundamentals of the argument are sound. They are only putting off the inevitable crash - nobody wants the crash to appear on 'their watch'. Pumping up the credit markets again only exacerbates the problem - the problem doesn't go away.
All on HPC are pissed off about this hair-brained move and what's worse still is the BoE may follow suit. I've mentioned before that the most important thing to Western economies is now HOUSE PRICES, pure and simple. This has only sunk into my head over the last 12-18 months and this realisation makes me pretty depressed. Everything will be done by governments and financiers to keep house prices rising or at least static. High house prices make people feel good, feel happy, feel rich, feel confident - it's cocaine for the middle classes.
I've said it before on this blog and I stand by it. If prices don't fall meaningfully by the Spring I'm gonna pile in feet first as it seems to me that when it does go bad you get bailed out - credit is the new income, it drives Western economies (somehow).
27. Jackdaw said...
I see the UK house price falls (having 'officially' started tumbling according to RICs/Rightmove in August) continuing - for the following reasons.
1) The peaking of HPI occurred before the additional damage of the NR mess arose.
2) The Treasury, BoE & FSA have been brutally humiliated by renegade lenders - and will hopefully tighten up lending controls.
3) 'sub-prime' customers will in future not get loans.
4) The government has made it clear it wants to hold down inflation - including wage increases.
5) Confidence has been damaged - hopefully smart potential house buyers will hold off in the expectation that prices will continue to reduce and hopefully - the avalanche will gather pace. The downside is the possibility that there are some who may not adopt the 'united we stand - divided we fall' stance that would bring massive collective pressure on pushing house prices lower - faster.
6) Energy and food costs are adding to inflation - thus limiting the extent of an IR cut.
In short - house (asking) prices were already sliding - and from where I sit have been doing so for some time - albeit unreported in the media - the recent crisis will hopefully provoke a tightening in lending - and further reduce demand for homes. Prices will have to fall.
Unfortunately - there may be no sanction of the EA's - this group of ultimate parasites - are not exposed to the risk and misery caused to borrowers (and more recently lenders). It's time they were regulated and forced to compensate the victims of their grossly over inflated valuations and product mis-descriptions. This is the 'profession' that were on the ground floor - fueling the fire of property prices and the massive personal debt we see now.
28. Trough2010 said...
This cut could fuel inflation in the U.S. Energy prices are already high - speculation has led to this in the short term but there is also lots of real demand in the world for energy, especially oil. Winter is just around the corner in many countries. Add to this a decline in the U.S. dollar as foreign investors start to seek higher-yielding currencies or currencies that are less likely to depreciate - this will make imports to the U.S. more expensive. Money supply is still growing strongly. The cut may have given Wall Street a lifeline though the price America and the rest of the world could end up paying may be high. Savers will lose out, so will people on fixed income.
29. The Learned President Mugabe. . . said...
Why not wait and see what the fianancial markets do to the US? They may spank them badly for this...
30. Yoss said...
Surely weakening the dollar like this will have some big kick back on carry trades? and if other currencies take a big swing up then UK interest rates will also need to follow to prop up GBP, if they don't then competing for limited resources with other strong currencies will get expensive and we can kiss goodbye to 1.8 CPI(oink oink flap flap).
31. Lord D'arcy Pew said...
Credit is just like a drug. First you get hooked on it because your mates say it`s great and a dealer can give you a very cheap first fix. Then you need more. To get the same effect you have to up the doseage 1X, 2X ......8X. the multiplies increase, just to get the same result. The dealers make so much money they cann't spend it quick enough, the users wonder what`s happening as the undrugged see the changes in them. Northern Rock was a bad batch cut with drain cleaner but sold as good sh** by the dealers. The US Fed has now increased the flow of the drug to keep it`s users strung out a little longer. No cold turkey for the US but eventual death due to Over Dose or too much cutting of the product.
32. dbnazz1 said...
Lots of central banks etc holding vast reserves of US Dollars. There were a lot of mutterings recently about them selling there dollar reserves because of there fear where the dollar was heading. With the Dollar now actually dropping I wonder if such cenral banks will
actually starting selling there US Dollar Reserves. If this happens this will devalue the Dollar further.
33. dugmug said...
Jackdaw has it spot on.
I don't know why such uproar on this blog - haven't we all known the Fed was going to cut for at least a fortnight now? I knew, I'm not surprised, why are you all acting like this is something out of the blue?
David...for all the reasons Jackdaw has given and more, this is highly unlikely to be a repeat of 2005 even if the BoE do also cut (I actually believe there is a good chance they will tough it out, for a while at least). In 2005 rates were still relatively low and lending standards were still lax. So when the BoE seemed to be saying, "hey, keep partying for a while, there's still money to be made here" (by their symbolic cut), it was really easy for all the speculators to pile straight back in. Today, rates are that much higher, lending criteria are already being tightened, and everything is 2 years more "unafforadable" than even they were in 2005. It also seems that sentiment towards risk has taken a real nose-dive of late, which I don't remember being the case in 2005 either.
Deepak..."These investors will take there money out of US$ and invest in UK£" Even if they did, that's UK£ not UK Houses. Money market traders swap one currency for another, not assets. And looking at our market and the Northern Rock spectacle, what investor in their right mind would take money out of America because their housing market has gone down the drain and then even dream of sticking it into our housing instead to risk the same thing happening again? Anyway, not that I'm an expert on the money markets but I think there's some far safer currencies out there than £'s.
For those of you saying "housing is king and so the authorities will keep it inflated forever" - why do you believe the authorities are this powerful? If this was true, why did the US "let" their property market fail? It's plain nonsense.