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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: Rolla Coasta who wrote (28811)	1/30/2008 8:43:47 PM
From: Elroy Jetson	Read Replies (2) \| Respond to of 217618

The Fed is cutting rates to subsidize the banks, which are in a terrible state. Most have written-off large chunks of capital, and there will most assuredly be additional major write-offs as the asset prices collateralizing loans decline. See the chart below showing the historic level of money banks are borrowing from the Fed at these new low rates! Those who think the Fed is cutting rates to support the stock market or boost the economy in the short-term are not well educated, as lower short-term rates at this juncture will reduce stock prices and the price of other assets due to rising long-term interest rates. Lower rates are raising inflation expectations due to the rising cost of imports, as the US Dollar declines in value in response to lower short-term rates. This raises long-term rates which is a decided negative for asset prices such as stocks and real estate. As lower short-term rates reduce the price of the US Dollar, this will increase exports, but in the short-run this will not do much to lessen lay-offs let alone increase employment. There is a bad recession in store for the US, which will likely be initially lessened by policy moves which will only extend the duration and scope of the downturn. The down-turn in the US is driving down foreign markets, such as Brazil and China, which are dependent upon exports. But the inflation created drives up the dollar price of commodities and gold. .