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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: yard_man who wrote (126837)10/2/2001 1:19:35 PM
From: patron_anejo_por_favor  Read Replies (1) of 436258
 
Did this fool write this with a crayon, or an Etch-a-Sketch?<NG>

cnnfn.cnn.com

Why aren't the rate cuts working? Has the Fed lost its moxie? Or is the current economic decline unstoppable?

In fact, the outlook isn't nearly as bad as the pessimists think. Just consider the two previous cases when central bank rate cuts failed to reignite a stalled economy -- the Great Depression and the decade-long recession in Japan that still hasn't ended.

The Great Depression was the result of a banking-system collapse. If banks are closing, it doesn't matter if the Fed cuts interest rates because there isn't anybody around to lend the money to businesses and consumers.

...Right. In this case, the banks doors are open, they're just not lending because credit worthy companies don't need it, and credit starved companies are too impaired to lend to.

But the current problems of U.S. banks are nowhere near that severe. In the late 1990s, they did lend too much to telecom firms and dotcoms -- and also to consumers with too many credit cards. The resulting bad loans will discourage banks from lending expansively for a while, but they certainly don't threaten the banking system.

True. They don't threaten the banking system, but derivatives and excessive leverage DO.

The situation in Japan is even less of a parallel. The Bank of Japan cut interest rates close to zero but failed to revive that economy. The problem was that Japan remained committed to propping up troubled companies and protecting jobs at almost any cost.

You mean, like bailing out their insurance companies, airlines and hedged speculators?<G>
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