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Jeremy Siegel, Ph.D. The Future for Investors

Jeremy Siegel, Ph.D., The Future for Investors

Don't Blame the Central Banks -- Thank Them

by Jeremy Siegel, Ph.D.

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Posted on Thursday, September 27, 2007, 12:00AM

The stock market's electrifying response to the dramatic 50 basis point reduction in the Fed Funds rate engineered by Ben Bernanke at the September 18 FOMC meeting amply demonstrates the power of modern central banks.

And the Fed is not the only central bank taking action. The European Central Bank (ECB) was the first to intervene in the market last August when the sub-prime crisis caused the cost of European bank reserves to soar. 

More recently the Bank of England (BOE) has de facto guaranteed the deposits of Northern Rock, a British mortgage lending bank and has reportedly lent the bank over 3 billion pounds.  Central banks are stopping financial panics dead in their tracks, stabilizing credit costs, and mitigating the impact of this crisis on the real economy.

Don't get me wrong.  I am not saying that central banks can completely prevent the boom and bust cycles that have plagued market economies from time immemorial.  

There was very little that the Fed could do to prevent the 1990 recession caused by the real estate bust and soaring oil prices triggered by Saddam Hussein's invasion of Kuwait.  Nor could the central bank prevent the 2000 recession caused by the popping of the technology bubble and 9/11.  But central banks have reduced the severity of recessions by preventing a financial panic from developing into a full-blown economic collapse.

What's the Magic?

Why can central banks stop financial crises?  Because they have a monopoly on the supply of the ultimate source of liquidity:  the currency that forms the base of our monetary systems. "Liquidity" refers to an asset that can easily be transformed into purchasing power.  And no asset that is better suited to that function than central bank money.

This is how central banks calmed the crisis. The first signs of disrupted markets appeared in August when the European Central Bank saw the interest rate at which banks were borrowing reserves from each other on the overnight market soar far above the rate that they had targeted in their monetary operations.  This meant that the banks' demand for reserves had jumped beyond the supply that was available. The ECB then immediately bought securities, paying for them by crediting reserves to the banks. This increase in the supply of reserves pushed the rate back down to the ECB's target.

Where do the central banks get such reserves?  They create them "at will" by either buying bonds, paying with newly-created reserves or loaning banks reserves against the banks' assets. Modern central banks do not require gold or silver to back the money they create; government securities, or just collateral from banks are all that is required.

The day after the ECB acted, the Federal Reserve performed the same actions in the Fed funds market, the U.S. market for bank reserves.  In fact, the Fed decided to create more reserves than were needed to keep the rate at the then-targeted 5.25% level.  The Fed's actions pushed the rate below the target and offset some of the increased risk premiums that were being demanded by the lending banks.

The Bank of England confronted a different problem.  Lacking the same comprehensive deposit insurance scheme that prevails in the U.S., depositors in Northern Rock, a large saving bank that lent in the sub-prime market, feared for the safety of their deposits and rushed to convert their deposits into hard currency. 

Unfortunately, banks have only so much currency on hand and to raise more they would have had to sell assets, or worse yet, call in their loans.  This is what starts a financial panic, as those borrowers who have their loans called in turn try to raise cash by selling assets or borrowing from some other institution.  This cascading effect can start a panic if more liquidity is not provided.

Fortunately, the Bank of England announced that it would back Northern Rock's deposits by lending against the institution's assets. This is called exercising the "Lender of Last Resort" function of the central bank.  The BOE effectively provided Northern Rock all the currency it needed to satisfy depositors' withdrawals.  Once depositors saw that the money was there, the panic subsided and the rush towards liquidity eased. 

Avoiding a 1930s Disaster

It is very important to understand how significant this Lender of Last Resort function is.  In 1929 a stock market crash turned into a liquidity crisis when depositors worried about the loans banks made against the stock market.  But the Federal Reserve and other central banks did not lend money to the banks that were besieged by depositors.  The Fed had claimed at that time that the banks that made bad loans should fail and should not be bailed out.

We hear the same objections today.  Critics claim that the Fed is "bailing out" the sub-prime lenders and encouraging risky lending. But these fears are misguided.  In no way do the central bank's actions "bail out" the sub-prime lenders.  Those that bought these securities through the capital markets will suffer the full impact of their imprudent actions, as central banks offered no reserves to lenders outside the banking system.  And those banks who made bad loans will also suffer impairment of their capital base.

The Fed made the right move at the right time and Bernanke's ability to secure a unanimous policy directive from the Federal Open Market Committee is impressive.  The Fed stanched a contagion that threatened to turn a problem isolated to the real estate sector into a full blown liquidity crisis and recession.

The world's other central banks have also acted accordingly by supplying all the liquidity needed to keep credit costs under control and assure the stability of their banking systems.  Thanks to their concerted actions, the sub-prime crisis should not turn into a recession.

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209 Comments

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  • Yahoo! Finance User - Friday, October 26, 2007, 4:53PM ET  Report Abuse

    • Overall: 5/5

    Excellent Article. I did not understand a thing!!! I loved it because it reminds me I know nothing about Finance Bombo Jumbo and thus I stay away from making stupid investments, just like many people do.

  • Yahoo! Finance User - Sunday, October 21, 2007, 6:31PM ET  Report Abuse

    • Overall: 3/5

    It is amazing to me that Dr.Siegel doesn't say anything about INFLATION, when he mentions creation of money. He is right that we won't see the market collapse, and Feds move will stabilze the makrets. The inascapable truth though is that INFLATION destroys value. And when Fed prints money we all as society dilute our value, our portfolios, pensions. We won't see it as a decline in the market, but we all get less for our money. I don't have a degree in anything, but you don't have to be smart to see the mistake in Dr. Siegels point. Obviously Fed thinks we are all simple and won't notice the deterioration of purchasing power of our money. Soon or later though we will have to fight inflation, and we will have a crisis, contraction, recession... you name it.

  • Yahoo! Finance User - Monday, October 15, 2007, 6:10AM ET  Report Abuse

    • Overall: 1/5

    Well this article seemed to put the cat amongst the pigeons so to speak. Unfortunately this whole problem started from excess liquidity in both the finance and domestic sectors. In the domestic sector it has lead to MEW due to HPI and we all know where that will end. In the financial sector it has resulted in betting on any form of leveraged product and passing the risk on - allowing more risk apetite. The central banks answer? More liquidity! To those of you who believe that dollar devaluation is good for the US economy I pose you with the following question: How many times in history has a country been able to devalue its way to prosperity? Hint, the answer is less than 1. I fear that you Yanks and to a lesser extent us Brits are in for a very, very rude awakening. To those who have prepared themselves (bank in Euros instead of Sterling and Dollars, have bailed out of equities esp USD ones, diversified into gold, reduced debts) they will be ok. Those who haven't? Well, you're going to have a very tough life. Don't say you haven't been warned....denial is a very expensive luxury.

  • Yahoo! Finance User - Tuesday, October 9, 2007, 12:38PM ET  Report Abuse

    • Overall: 3/5

    The best answer for everyone - if you can qualify for the money merge account from United First Financial, get on that program! I don't blame the central banks for the problem the US is in now, but with the MMA program, I can at least "play the Game" so to speak. If we are going to be charged more than double what our mortgage is for- in interest, then if I can pay it off ealier than the 30 years without using money out of MY pocket- I'm all for that! The MMA is helping us pay off the 29 years left of our mortgage in half the time, plus we were able to pay off a bunch of debt from the equity in our house. We went to www.u1stfinancial.net/johnfechik and filled out the analysis. The agent worked with us and got us qualified for the program. The banks may not like us paying less interest to them, but it's time we take control of OUR OWN MONEY and start using it in away to BENEFIT US- not the banks!

  • Yahoo! Finance User - Sunday, October 7, 2007, 12:17AM ET  Report Abuse

    • Overall: 4/5

    I've read the article and about 100 comments and tried to reconcile them. I have never seen so many hostile, poorly supported assumptions which are held as fact by those writing them. Hiding behind your keyboard with angry retorts may make you feel good for 5 minutes, but none of you have convinced me that Siegel's description of events is incorrect, though they are perhaps incomplete so I left off a star. I have read certain industry journals on both home financing and borrowing overall, and I can tell you that the Fed did the right thing (I originally thought they should have let rates stay at 5.25% but as I learned more, I was surprised how little they did). Read about banking panics in the 1870-1890's, and you'll see why the Federal Reserve is not only needed, but why they acted instrumentally in stopping what could have been a major financial melt-down in previous decades. When I see people rate Siegel 1 star, I can only suppose you are acting upon your inner child to lash out at your teachers you had earlier in life, because even if you disagree, there is no way this is a 1 star article.

  • Yahoo! Finance User - Friday, October 5, 2007, 10:41AM ET  Report Abuse

    • Overall: 2/5

    I think those investment banks that sell those sub-prime mortgage backed derivatives should be punished by their greediness and not bailed out. They just sell, sell, sell and earn on the transactions. In my mind Fed cut rate still gave them a boost in bonus pool which shouldn't be. Most buyers on these derivatives, however, wasn't aware of the risk and become victims of this turmoil.

  • Yahoo! Finance User - Thursday, October 4, 2007, 4:30PM ET  Report Abuse

    • Overall: 1/5

    All fiat banks will fail in the end. The Federal Reserve is tottering on the precipice. Gimme an I-N-F-L-A-T-I-O-N. The only stable banking system is one that is based on Gold Reserves. The mortgage poopstorm is only just beginning folks.....

  • Yahoo! Finance User - Thursday, October 4, 2007, 2:51PM ET  Report Abuse

    • Overall: 1/5

    What can I say, the last time I posted over here, Yahoo is bad. My head my head , Please G-d take away the pain of Yahoo. I used to enjoy the Professor and other experts writing down here, until Yahoo censored me, more than once. It seem the experts along with Yahoo does not like down to earth rebuttal or totally differing views or opinions. Like it goes against the Mojo.. Mama mia, Thank whom. Non-sense. The Ph.D write. I am sorry. but whom to put the blame........ The illegal Federal Reserve. Fiat money, unless you forget about your old is gold start.

  • Yahoo! Finance User - Thursday, October 4, 2007, 2:16PM ET  Report Abuse

    • Overall: 1/5

    The cetral banks CREATE the booms and busts, not help prevent them. And liquidity is just another word for inflation. And inflation from newly created money is a TAX in every sense of the word, and a regressive one at that. And fixing the price of interest makes as much sense as Russia's politburo fixing the price of shoes. The result will always be the misallocation of capital and the elimination of risk aversion. NOT GOOD.

  • Yahoo! Finance User - Thursday, October 4, 2007, 11:43AM ET  Report Abuse

    • Overall: 1/5

    Oh I get it, "Thank" the banks when the markets go up. As if market manipulation is the job of the Federal Reserve. The dollar is at all-time lows against the Euro, and we have the biggest banking crisis in our history looming on the horizon (which can only be averted with even lower dollars). This is what we can "Thank" the Federal Reserve for. On a side note: When was the last time anyone was impressed with Siegel? He writes unimpressively, and his thoughts are always a paraphrase of someone else's thoughts which we've mostly already read. The man is a lightweight. "Thanking" the central banks for "supplying needed liquidity" is like thanking a crack dealer from saving you from the shakes. The "medication" is the problem. Central bankers only have a couple of levers they can pull. Economists tend to be very impressed when they get pulled. This stuff isn't rocket science. And if it were, our rockets would misfire frequently.

  • Yahoo! Finance User - Thursday, October 4, 2007, 12:39AM ET  Report Abuse

    • Overall: 2/5

    I could read that a lot of people give blind credit to the professor because, whoa, he is from Warthon. First, economics is by far not a hard science, second, those same experts sold you .com stocks valuated 200x their losses and would have convinced you that there was no subprime problem 3 months ago. However, the fact is that the banking system is central to the economy and a real run on that Calabassas bank for instance would have had a devastating effect on the whole economy. It is sad that such greedy and relatively small minded people can go away with it, again, but it is not going to change soon. What I don't understand is this total fear of a recession. What is the problem with a recession? The weaks are shaken up (they do not even die in our civilized societies), they can learn from their mistakes, assets get cheaper, life is calmer and you can start anew. Avoiding recessions by jumping from bubble to bubble can not be the solution for ever.

  • Yahoo! Finance User - Wednesday, October 3, 2007, 10:58PM ET  Report Abuse

    • Overall: 1/5

    The central banking " theology" is going to fail. Just read Frederick Hayek's ( or Milton Friedman's) "Descent to Salvery". All euphemisms about the modern central banking based economy are thinnly veiled attempts to disguise the central creed of "monopoly over creation of currency and liquidity " under the banner of scientific method. We need a new method for the creation and distribution of currency/liquidity. No less an authority than Robert Rubin had uttered some words that essentially proclaimed that. Unfortunately, like all profound changes in wealth distribution, I can not see that happening without major disruptions and tribulations.

  • Yahoo! Finance User - Wednesday, October 3, 2007, 6:14PM ET  Report Abuse

    • Overall: 5/5

    Wow, the Ron Paul paranoia is everywhere. This is a very well written article that assuaged some concerns I had about the recent rate cut.

  • Yahoo! Finance User - Wednesday, October 3, 2007, 5:44PM ET  Report Abuse

    • Overall: 3/5

    Dr. J, Good points, but please don't forget that Mr. Greenspan's six interest-rate hikes in 1999, while there was no inflation to speak of in the US economy, was THE reason for the stock market crash beginning March 2000. His eighteen subsequent cuts, to try to reverse his horrible mistake, didn't work. :(

  • Yahoo! Finance User - Wednesday, October 3, 2007, 5:25PM ET  Report Abuse

    • Overall: 1/5

    A PhD with the "money IQ" of a marmoset. A vote for Ron Paul is a vote for honest money. Let's get control of this republic out of the hands of the bankers..

  • Yahoo! Finance User - Wednesday, October 3, 2007, 4:40PM ET  Report Abuse

    • Overall: 1/5

    Just another PR missive from the powers that be, telling us how great everything is. Don't see any mention about the crashing U.S. dollar and its inflationary implications. Why did almost every currency in the world go up against the dollar after the Feds move? Apparently people would rather hold Turkish Lira, Indonesian Rupiah, Phillipine Pesos and Botswanan Pulas than our currency. Could this be telling us that the U.S. is bankrupt and our currency is going to be close to worthless? - New York Investing meetup

  • Yahoo! Finance User - Wednesday, October 3, 2007, 3:50PM ET  Report Abuse

    • Overall: 5/5

    READ AGAIN: It's not the Fed's fault!. They do not make or approve BAD loans. It is the responsibility of the Dept of Banking and Finance (aka under jurisdiction of the White House and to a lesser extent, Congress)to monitor and approve lending policies. They FAILED to do their job by permitting mortgages to be approved under faulty (at best) practices. And worse yet, NOBODY at the executive level of our government CARED. They probably made money--a lot of it--by shorting the dollar in the futures market, and using the information of an imminent disaster to their "insider" buddies. The Fed only stepped in because of the incompetence of our executive branch of leadership to fix a major problem before it happened. If the Fed didn't step in when they did, we would be much worse off. Read the articles in Yahoo Finance detailing the FAILURE of the Republican led Congress to address the problem in 2005. You can't lie about the facts!

  • Yahoo! Finance User - Wednesday, October 3, 2007, 3:36PM ET  Report Abuse

    • Overall: 1/5

    Wake up people. Please watch movie "Freedom to Fascism" and "Fiat Empire". Central banking is huge scam that has robbed the people of more than 99% of the US Dollars' original value. Instead of free markets, we have a Private corporation running the show, controlling the money, and controlling the Government. This private Corp. is The Federal Reserve. No more Federal than the shipping company Federal Express. Do you know about the Bohemian Grove or the Bilderberg Group? Learn what the real leaders of the planet are doing and planning in secret. Are you ever going to wake up America? Turn off the TV and start de-programming yourself. I urge you to start listening to some of the truth programs on gcnlive dot com. The power hour is an excellent show and many others. Don't be suckered in this next Presidential race. They seek to divide us with the right and left paradigm. You must learn about Ron Paul because the Media is controlled and biased..........always seeking to influence & control public opinion. Ron Paul is the only Presidential candidate for 2008 that is a man of the People and not bought and paid for by the Elites and corporations who control everything for profit. I urge you all to seek out and learn as much as possible of the New World Order. You won't believe what's been going on right under your noses'. And you thought you were informed because you keep up with CNN and Fox News! HaHaHa!!! TV is the greatest mind control instrument. Please turn it off and start doing your own research. Hopefully we will have a chance to start living by the Constitution again and reclaim our liberties along with an honest money system. You'll only get more of the same Puppets in Washington unless you get behind Ron Paul in 2008 and make sure he is elected. Go get busy now........Why not skip the $5 Latte this week and donate it Ron Paul's campaign? It will help and you can be sure he's not getting money from the elites and big corporations who care nothing for the common man on the street. God Bless you all :-)

  • Yahoo! Finance User - Wednesday, October 3, 2007, 3:32PM ET  Report Abuse

    • Overall: 5/5

    Finally, an excellent analysis from start to finish, and easy to understand. Good job.

  • Yahoo! Finance User - Wednesday, October 3, 2007, 2:55PM ET  Report Abuse

    • Overall: 5/5

    I dont think we should be so concerned about the dollar depreciating. 1) exports, exports, exports. Did I mention the export thing. This can stimulate domestic demand. 2) about 90% of people never travel to a foreign country. Why should you be so concerned about purchasing power if you never leave the US. If you are one of these people, dollar depreciation is basically irrelevant. There are different levels of expertise on Yahoo. We have our Penelope's and our Suze & then we have Jeremy and company. This guy is a true expert.

  • Yahoo! Finance User - Wednesday, October 3, 2007, 2:49PM ET  Report Abuse

    • Overall: 1/5

    Credit expansion is the activity where the authority or the business producing money channels it into the market by purchasing merchant bills, government bills or bonds or other credit instruments. Credit expansion is the policy that central banks pursue. It is broadly accepted as a measure to make society prosperous. It is its declared objective to make credit abundant. New credit channeled into the system is said to spur business activity, capital becomes inexpensive, entrepreneurs can borrow more money for investments, commerce flourishes and soon all of society is permeated by the magical boon that the additional credit boom bestows upon it. Everyone is supposed to enjoy all the products and services they have been longing for under the stingy policy of tight credit. This idea is based on the assumption that capital can be created out of nothing. But capital can only exist if factors of production are available for use. Every investment necessitates the use of factors of production that turn out more or more valuable products after a roundabout process rather than consuming fewer or less valuable products immediately. Factors of production can only exist if people have generated savings. Savings are generated if one foregoes immediate consumption for the prospect of future consumption. Foregoing present consumption can only be feasible if a person considers the future remuneration he gets in return more valuable than the immediate consumption he sets aside. This is what is called time preference. Time preferences are expressed on the market in the form of interest rates. This causality ensures that market interest rates provide an indication of the availability of factors of production and individuals' time preferences. While prices give entrepreneurs an indication as to what products are desired or needed, interest rates provide a measure as to when they are desired or needed. It is now necessary to examine what the process of credit expansion entails. The central bank that creates money does not own any capital, it does not create factors of production. The only thing it channels into the market is pure fiat money, money that is enforced via legal tender laws. People demanding capital on the open market issue credit instruments such as merchant bills, governments issue government bonds and bills. The credit instruments purchased by the central bank will go up in price after each additional purchase, interest rates drop. Other providers of capital on the market whose time preferences were matched by the credit instuments offered will abstain from obtaining the corresponding credit instrument. The interst rates for the loan contracts purchased drop below the market rate. This entails that the entrepreneurs' assessment of time preferences is skewed. They think that present goods against future goods are valued less than actual voluntary time preferences warrant. Those roundabout projects, that were not being embarked upon, because interest rates indicated time preferences in favor of shorter projects now appear to be feasible. Entrepreneurs begin embarking upon more roundabout projects that yield a produce in the farther future. They set aside less roundabout projects which the market interest rates would have induced them to begin, had the credit expansion not taken place. The result is that consumers are NOT supplied with products as desired as per their time preferences. The objective of credit expansion, namely to ensure that more capital is generated in order for the market to provide more of what consumers demand, fails. It has the opposite effect. It skewes the entrepreneurs' judgment and makes them align resources to produce products that consumers are not demanding and makes them use factors of production for processes that turn out products later than consumers are demanding them while withdrawing them form those production processes that would have complied with consumers' time preferences.

  • Yahoo! Finance User - Wednesday, October 3, 2007, 2:24PM ET  Report Abuse

    • Overall: 1/5

    It doesn't make sense to thank Fed which punishes the dollar holders and rewards those who ruined the system with bad loans.

  • Yahoo! Finance User - Wednesday, October 3, 2007, 2:14PM ET  Report Abuse

    • Overall: 1/5

    The Fed acts like its job is to prevent any decline in the stock market. This is because if we have a 2000 point drop in the dow, all the paid shills on CNBC will start yelling their heads off, but when the dollar plummets 20% no one utters a peep. To quote Jim Rogers: "Let some people go bankrupt. That’s what capitalism is. If you don’t let people fail, that’s not capitalism. The Russians tried that, and we all see where that got them."

  • Yahoo! Finance User - Wednesday, October 3, 2007, 11:46AM ET  Report Abuse

    • Overall: 1/5

    I think we understand very well what the central bank is for--bailing out Wall Streeters and hedgie-fundies. The liquidity crunch was nothing more than everbody noticing that junk bonds were truly junk, that the rating agencies' computer models were garbage-in = garbage-out, and the slice-and-dice derivatives that no one understood were suckertraps. So they called on the cabal of banks that JP Morgan invented and that conned the govt into thinking that the govt could control it. And the central bank pumped funny-money in, so that the Dow could go to 14000 again, the Streeters and fundies could get billion dollar bonuses, and the dollar could go into the toilet. Of course the Streeters and fundies had bought euro-denominated assets by then. WAKE UP AMERICA!! THEY ARE ROBBING YOU BLIND!!!! and this joker segal is playing cheerleader for these thieves.

  • Yahoo! Finance User - Wednesday, October 3, 2007, 11:45AM ET  Report Abuse

    • Overall: 4/5

    why do some people that have most likely have no education and knowledge of macroeconomics even attempt to criticize one of the greatest financial minds of the most powerful economy in the world. there is a reason why j. siegel is a professor at Wharton and you are not. if you truly believe you can evaluate the state of the economy better than a man who is 5x as smart as you and does nothing else than think about this all day with all possible resources at hand - you are quite simply an idiot. if j. siegel speaks, you should be quiet and listen, maybe your simple mind will be able to pick up a thing or two.

  • Yahoo! Finance User - Wednesday, October 3, 2007, 11:30AM ET  Report Abuse

    • Overall: 1/5

    What's next -convincing us that high taxes created by the brilliant big central governments are good for the economy too? Could you write another article convincing us also that $63 bln Wall Street bonuses were well justified. How much they will get this year? Is there some disconnection with reality? Maybe that's a good way to create some liquidity too? alfa48230

  • Yahoo! Finance User - Wednesday, October 3, 2007, 10:45AM ET  Report Abuse

    • Overall: 4/5

    Overall a well writen article. I may not agree with the stock market that lower interest rates will solve the problems facing the US (Too much Debt both personal and Government & an aging population), but I agree with Jeremy that the fed had no choice but to act boldly in this situation. When credit markets seize up and stop funcioning the central banks must do whatever is nessenary to solve the immediate crissis. People who are angry with the fed for there moves fall into two camps I suspect. One, Shorts who got killed by the recent run up. Or two, people who don't understand the severity of the crisis. Someone actually sugested that Jeremy "just doesn't grasp economics", I got a real chuckle out that one. The professor of finance at Wharton just dosn't have a clue about economics I'm sure.

  • Yahoo! Finance User - Wednesday, October 3, 2007, 10:40AM ET  Report Abuse

    • Overall: 1/5

    The glaring flaw in the article is that he fails to mention how this mess was created in the first place. Even Greenspan now admits it was caused by the reckless lowering of interest rates and lack of due dilgence by lenders for a variety of reasons, which invariably creates asset bubbles. Once you understand this simple point, the idea that a rate cut is good is nothing short of moronic. The biggest threat to the USA right now is over valued housing. Bringing home prices back to historical norms, and rent v. mortgage payment ratios, needs to be the primary focus of those who have the ability to control such matters. If we don't do this now, it will be worse than the Great Depression.

  • Yahoo! Finance User - Wednesday, October 3, 2007, 10:29AM ET  Report Abuse

    • Overall: 1/5

    Is this guy kidding. The rate cut just continues the series of worldwide rotating "hot money" speculation that is ultimately doomed as the 2000-2002 bear market proved. Homeowners won't be helped at all but speculative investment bankers once again get their bed feathered. Horrible bunch of propaganda, that article!! So, Jeremy, "the bankers are my friends"? When has that ever been true since the creation of the Fed in 1913. Most studies show that the creation of central banks knocks one percent off the GDP which makes sense. These guys are PARASITES!!

  • Yahoo! Finance User - Wednesday, October 3, 2007, 10:00AM ET  Report Abuse

    • Overall: 1/5

    Unfortunately, he just doesn't grasp economics. The rate cut was a wallstreet bailout at the expense of our economy. Debt is too high right now. We need less spending and more saving. Also housing is 30-50% overvalued. The cut did nothing but devalue the dollar, increase inflation pressures, and delay the collapse. The faster we kill the debt beast and get housing prices down the less severe the ultimate recession will be. If we keep feeding the beast, he will turn on us and devour us all. He needed to raise rates 50 points, and flush all the crap out of the system. Sure certain ppl will lose their houses, but they are ppl that never really could afford the house anyway and were playing the housing market as if it was equities. They deserve what they get, and perhaps, our children, may be able to live middle class lives. It is frightening how many ppl don't really understand how money works, and are easily fooled by propoganda that helping wallstreet brokers get huge bonuses is best for us all. Shameful. Real shameful.

Showing comments 6-35 of 209<< PreviousNext >>
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