What is the biggest concern right now with this record breaking rate cut?
Answers
678 points
BoxCar answered one year ago …
Zero interest means "Free Money" Isn't that what got us into trouble in first place?
If the patient is a stumbling fall down drunk, why would you give him more whiskey?
Gov't monetary policy intended to stave off the inevitable deflation that needs to happen. Means Fed intend to "Float the Bloat" leading to destruction of dollar value
if money printing presses run amuck & Bet the Debt on maintaining status quo-
Auto Big3 have to "DownSize or CapSize" Pumping in injections of moola' serves
no answer to basic problem they have more capacity than market share can handle
Get rid of subsidized foreign auto industry and subsidize our downsized companys.
Reagan helped Harley when Japs dumped large bikes in this country, why not do
the same for American auto industry by limiting foreign autos to a level playing field
Asian auto execs state they only make 4 to 5% of a cars value here in America.
If you can't produce 1/2 the foreign auto here, then go elsewhere, don't put up an
ASSEMBLY plant of low tech workers and pretend your building in America,
we do not need any more lies. America has her own Big Lies- like bolt action rifles
used to kill a president; Ever shoot a Bolt Action Rifle? What a Big Lie! I was 23
and member of OU rifle team in 1963- biggest lie I ever heard, cynical ever since.
3963 points
MNSL answered one year ago …
It all depends on how this low interest money going to use in the future by all types of market players. If they invest in productive areas definitely world economy will benefit in the long run. It is vital how they are going to invest these low interest funds in the future.
Over speculation on oil and commodities and inlfated real estae valuations are the main culprits of the present mess.
The problem is in deflation, not inflation. That is what these policy makers think. So they think Interest rates are the best answers. Amost all the countires are reducing interest rate rapidly now. Yestreday USA, today Japan. tomorrow UK after that Euro and Australisa.
There will be further rate cuts globaly in January 2009.
Some say these measures will undermine the economy and will cause excessinve fall in exchange rate.
128 points
Billygtr answered 11 months ago …
The biggest concern is that even with banks being able to borrow money to lend at virtually no interest, they will not lend it to generate consumer spending. The reasons for this limiting of credit are two-fold. First, lending institutions are loathe to take on the risk of default in situations where the borrower may not be able to repay as agreed. Second, banks with shaky balance sheets due to mark-to-market requirements (which value long term assets in terms of their fire-sale price this month) would rather hold onto the extra cash as reserves than lend it. So, what will ultimately cause the economy to recover? What most Americans hold as their largest asset - real estate - will have to begin increasing in value for the net worth of America to rise to a level that will sustain an economic recovery. This means that the demand for homes will have to come up to where it can balance the current oversupply. Unfortunately, since there is little free cash flow in the U.S. to sop up this excess supply, the demand will likely come from places like the India and Saudi Arabia, where there is still an excess of privately held wealth. In short, only the selling of American assets to the highest bidder will generate the real wealth necessary to correct the crash in housing values.
What is being overlooked in all this Keynesian "government stimulation" is that government spending does nothing to create real wealth, and only the growth of real wealth can generate a lasting economic recovery. Government spending is, in the best case nothing more than the redistributing of taxpayer assets, and in the worst case the devaluing of the dollar by increasing the money supply, such as printing money to bail out troubled sectors of the economy. While this may serve to stave off simultaneous (but still necessary) corrections in these sectors, it does nothing to address the long-term need to increase profitable activity in the private sector, because it merely prevents companies such as GM and Chrysler from experiencing the consequences of bad management decisions. Remember, what government subsidizes we get more of; what it taxes, we get less of.
In the long term, printing more money is inflationary, and when the massive influx of "new money" begins to be felt in the economy there will be a very quick rise in inflation. We have already seen gold rise in dollar terms (because the dollar is worth less, not because gold is worth more) on the news of these massive government expenditures. When the price of oil begins to reverse the present decline, I believe it will signal the beginning of this price inflation.
Hold onto your gold, pare your expenses, and expect the stock market to retest the November lows before we see another bull market.
