Booms, Busts, and Recoveries Message Board

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Strategies & Market Trends : Booms, Busts, and Recoveries

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To: Snowshoe who wrote (22894)	8/20/2002 5:40:07 AM
From: EL KABONG!!!	Read Replies (1) of 74559

Hello again, Snowshoe, Another cut won't help those who aren't credit worthy. But it does hurt savers who get less income for their investments. Interest rate cuts have two purposes. First, they are supposed to make the cost of capital less expensive, thereby further enabling free flow of capital (in the form of debt) as investment in the business model. The second purpose is to make fixed-rate investments less desirable, thereby making equities appear more attractive by comparison. I believe that what the author meant by his comments was that the Fed purposefully chose the least desirable position (from the market's perspective) in deciding to not cut rates, but admit there's a problem by signaling a change in bias from neutral to negative economic growth. In reality, what the Fed has said is that, yes we realize that there's a problem and the potential for further problems, but we aren't going to do anything about it at this time. Only time will tell if this move is a piece of brilliant strategy, or the equivalent of a boondoggle gamble that will ultimately fail. (My vote is for ultimate failure.) KJC

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