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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: mishedlo who started this subject2/25/2004 12:35:03 AM
From: CalculatedRisk  Read Replies (3) of 116555
 
I'm starting to think that that Fed report was wrong about the liquidity trap. Any time someone says Keynes was right, I always remember that Keynes was SMART and would probably think something different today! These are tricky times; I need to sleep on this!

(thinking while typing - beware of erroneous ideas)

If the Fed intervenes in the 10 year, it will need to drive the rate to 3.5% (maybe 3%). I wonder how low the 30 year fixed rate would have to drop before we would get another round of refinancing. Maybe one of the mortgage guys could guess at that number. Currently (I think) the 30 year fixed rate is around 5 1/2%, so it is about 1 1/2% above the 10 year. Would a 30 year rate of 4 1/2% spark another round?

Hmmm ... a bond rally would make the BOJ happy since they have been buying Treasuries. But wouldn't the dollar drop like a rock against the Euro? Wouldn't oil prices jump with the falling dollar, since OPEC is apparently marking to the Euro?

Since there is no pent up consumer demand, what is a lower rate really going to accomplish? Wouldn't the energy penalty (high cost of oil) outweigh the benefit from lower rates?

What does this really accomplish? It buys us a little more time ... strange times indeed. Maybe something will come to me in my sleep <g>.
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