Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Zeev's Turnips - No Politics -- Ignore unavailable to you. Want to Upgrade?

To: Robert New who wrote (12408)	12/11/2001 10:02:21 PM
From: getanewlife	Respond to of 99280

For those listening ears:http://www.quamnet.com/fcgi-bin/analysis.fpl?par2=2&par3=1%202%2011&par4=20011212D-01 Daily Quommentary: Liquidity Trap Dec 12, 2001 - 10:27:34 HKT QuamResearch The U.S. Federal Reserve cut major interest rates by 25 basis points on Tuesday night. This is already the eleventh time since the beginning of the year. The federal funds rate charged on overnight loans between banks was lowered to 1.75% while the discount rate was reduced to 1.25% -- both being the lowest in 40 years To us, this is a bear signal as the aggressive actions reflect that this recession in the United States -- the engine of the world economy -- might probably be the most severe in 40 years. The Fed in a policy statement said that the economic risks remained tilted toward weakness, and hinted at further rates cut at the next Fed meeting between January 29-30. The federal funds rate was cut by 4.75% this year, and the real interest rate -- nominal interest rate minus inflation rate -- has fallen back to negative territory. In other words, the purchasing power of savings after deducting inflation has become negative, and consumers should be more eager to spend than to save. On the other hand, borrowing money for business expansions or asset acquisitions should also be beneficial to borrowers rather than lenders. The reality, however, is that we have not seen a strong recovery either in consumption or investment spending since the Fed cut the interest rates. Have we fallen into a liquidity trap (a concept invented by late Sir John M. Kenyes, a famous British economist and successful stock trader)? A liquidity trap happens when business and consumer confidence has become so weak that all stimulus activities, both fiscal and monetary, are unable to boost the economy. A recent example is Japan, whose economy has been in recession for 11 years, but there are still no signs of a recovery despite whatever efforts made by the Japanese government. The impact on the local economy