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Wow, Fed cuts rates to nearly zero

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December 16, 2008 – Comments (14)

Fed Cuts Key Interest Rate To Between Zero and 0.25% 

Wow, In a more significant move than I and most others had expected it appears as though the Federal Reserve has decided to cut interest rates to "zero to 0.25 percent."  When someone in my office told me this I couldn't comprehend it.  I was like huh?

I guess this means that they cut by a little more than 75 basis points to the lowest level ever.  I wonder why they are using such a strange rate, perhaps they believe that this is the lowest possible level that they could go to before the returns on money market would be negative.  Otherwise why wouldn't they just go all the way. 

Mr. Market certainly likes the move.  The Fed certainly didn't sound very optimistic about the economy in its statement, "The committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time."

Deej

14 Comments – Post Your Own

#1) On December 16, 2008 at 3:05 PM, angusthermopylae (40.73) wrote:

I'm not "smart" enough (read: "formally or by experience trained in the black arts of economics") to parse out all the implications of a near zero rate from the Fed, or argue about the "liquidity trap", but....

...I can't help remembering how, after 9/11, all the auto makers began announcing 0% financing.  "What a great move!"  "This will help the American economy get moving!"

What happened?  About 3 years later, those old 0% loans were seen as a complete disaster.  The financing arms of the auto industry were carrying the burden (time, paperwork, etc.) of of loans where the profit had been spent long ago.  The only money the companies made were from the initial sale.  That's it.  Everything else is a burden.  You couldn't project income because there was none--you were basically out of pocket until the financing was paid off.

Maybe this historical example is way off base, but the similarities (and potential long-term effects) should at least be pointed out.

I know that this particular rate doesn't work the same as a car loan, but to me, it shows that they have painted themselves in a corner.  What can they do next, go negative? (Hmmm...that might work:  "For every $1million you borrow, the Fed will pay you $10,000 on top of that!"  Ha!)

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#2) On December 16, 2008 at 3:12 PM, Nainara (< 20) wrote:

Come on Bernanke, blow harder! This bubble won't reinflate by itself.

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#3) On December 16, 2008 at 3:17 PM, VIS46 (34.28) wrote:

Japan had similar situation for long time.They baught our treasuries and made money.Where do we put our money now to get a decent return.

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#4) On December 16, 2008 at 3:54 PM, starbucks4ever (98.54) wrote:

dollar carry trade, anyone?

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#5) On December 16, 2008 at 4:13 PM, TDRH (99.54) wrote:

Long term interest rates are decoupled- doubt a 30 year fixed will drop below 6% for very long.   The spread is to keep the financial sector on life support.

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#6) On December 16, 2008 at 4:22 PM, DemonDoug (32.63) wrote:

the effective fed funds rate has been floating between .1 and .15 for some time now.  The official announcement is little more than admission of what is already going on.

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#7) On December 16, 2008 at 5:03 PM, guiron (27.01) wrote:

We're all Japanese now!

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#8) On December 16, 2008 at 5:44 PM, johnw106 (63.09) wrote:

Benny boy has already laid out his game plan. You can find the details in a speech he gave in 2002.

Next will be the feds buying foreign equitys so they will have US dollars to loan back to us. They are already buying domestic equitys like fannie and freddie, and the "toxic" papers like cds and mbs that banks like GS are holding.

Its the greatest transfer of wealth in recorded history. From the working and producing class into the pockets of the leeches and ticks that make up the banking system.

Gotta love capitalism. And before you cry "it is socialism not capitalism" I remind you that this is indeed the real thing. The true nature of capitalism. The strong take from the weak, and make the weak like it.

 

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#9) On December 16, 2008 at 7:23 PM, Mary953 (77.96) wrote:

May I merely take exception to the generalization that is implied here: "From the working and producing class into the pockets of the leeches and ticks that make up the banking system."

We have many people on this site who work in banking.  They share their knowledge generously and are as concerned as any of us about what is happening.  Probably they are more worried because they understand better what may be coming.  I count some of these people as friends and would go to them with questions.  I hope they would do the same if there was an area I could help in.

John

You have an incredibly sharp mind and I have enjoyed your comments and learned from them.  I hear in this remark the same frustration I feel.  If you are like me, no one around you really seems to get what is happening.  I know the group you mean - that upper echelon that plans to go to the top of the tallest building, pour drinks all around, pop their golden parachutes, and sail off leaving this mess for the rest of us to deal with.  There will be a lot of our banking friends trying to clean up that mess with us.  At that point, our friends may be the greatest riches we have.

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#10) On December 16, 2008 at 7:48 PM, starbucks4ever (98.54) wrote:

I think all banks should be shut down and all people on this site working for banks should lose their jobs, but I have nothing against them as individuals. As the saying goes, only business, nothing personal. 

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#11) On December 16, 2008 at 8:08 PM, Mary953 (77.96) wrote:

If I were working for a bank, I would take that very personally - business or not.  Would you simply want all institutions that handle money to shut down?  (And I am silently cursing the fact that in typing, I don't know how to relay the fact that I am being curious.  I just cannot fathom how a civilization like ours could function without currency and a way to store, lend, use that currency)

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#12) On December 17, 2008 at 11:04 AM, carcassgrinder (48.62) wrote:

agreed zloj.  and take with them the lawyers, brokers, analysts boards, comittees, chairmen, CEO's, CFO's and all the other paper shuffling, golf playing professions...They have a choice.....learn to do something that contributes to society...or you are now the new poor.  Pacifist attitudes are exactly what allow these maggots to continue their pillage. 

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#13) On December 17, 2008 at 11:08 AM, Timh0rt0n (95.72) wrote:

I guess its every man for himself? If you don’t work for a bank then to hell with them. If you don’t work for an auto maker then shut them down. Remember burn the lawyers at the stake too. I guess the idea of working together for the good of everyone is a dead idea.

 

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#14) On December 17, 2008 at 1:15 PM, Mary953 (77.96) wrote:

 The idea of wiping out large groups because you don't like what they do is terribly frustrating to me.  What do you watch when a magician is on stage? Do you watch the hand motion with the wand, the assistant, the cape, the embarrassed guy from the audience, or do you watch that one hand that is actually, stealthily doing the trick?

By all means, follow the patter, and get rid of every person who actually tried to learn anything, especially those who were fascinated by the workings of the business world.  And let's not forget to mow the golf courses with Uzis.  We will all be better for it.  In the meanwhile, the magicians at the top of the financial ladder will be laughing as they gently push forward another few embarrassed scapegoats to be attacked and keep on stealthily doing their tricks.

For goodness sakes, Wake Up! You can name "the elite" aka everyone that you think has it better than you or everyone that on TV might have it better than you and then wind it up with "all those golf playing professionals" just to fill in any gaps you left.  It will not change a thing.  You still haven't found your villain.  You are, I assume, looking for a Villain - capital 'V'.  All you are doing is splitting us all apart.  There is No better recipe for disaster.

Our Revolution succeeded where others failed because we did not go down the very road that you suggest.  It took a "stage ploy' by G.Washington to avert a military coup from soldiers intent on taking their back pay out of the hides of Congress.  The French were not so lucky.  They got the guillotine and the very apt term "Bloody Revolution" before getting a new king - the brother of the one they had killed The Russians kept their revolution going until there were no 'maggots' left to put the remaining pieces together.  They got a civil war and a strong bloody fist holding the reins. 

We are a community. This is the best hope we have.  Whatever is coming is not going to be something we have dealt with before. Parents or grandparents yes, but not us.  We work together even in a capitalist system.  We do not hunker down and growl over our possessions like hyenas

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