reticiiz.... I completely agree with your point of view and think you hit the nail right on the head. It's just so much hot air, and politics that are involved in the FED shell game. The only thing they know how to do is print money. The FED doesn't set rates, they follow them based on the markets. Their only choice is WHEN to cut or raise rates. The mis-named FED is no more than a very powerful group of private bankers that are simply business men and women that want to make a profit. They care about their business, not some fools that don't know how to control their personal spending habits. Gold is going up and may very well break out to new highs in a very short time. Gold is insurance against inflation and a rate cut in not going to solve any problems. It would exasperate them, and encourage more borrowing by people who are already maxed out on their credit. The speculators that are stuck with those new homes are under water. They never intended to make payments on them, they just wanted to flip them ASAP. All they have to do is walk away from them and let the bandes worry about it. The banks don't want to own those houses either, so they're going to get as much as the auction market will bring. The rate on ARM's isn't going down to encourage more speculation and unqualified borrowers. Who's going to write new mortgage loans at lower rates, when money is tight? A rate cut at this time is only wishful thinking. The FED will print more dollars because that's their ongoing program, even if they have to drop new money from helicopters. The only real money is GOLD, not paper printed at will. Does anybody remember when they were kids and asked their parents for money because they wanted something real bad? The standard answer was, "do you think money grows on trees"? Apparently, that's what the FED would like you think!
If you check out futures (5 yr to 30 yr), you will see all treasuries rallying (yields falling). The markets are already calcualating a rate cut. During '29 crash, 1/5 of the banking institution became insolvent. Since these banks are backed by the FDIC (up to $100K), FED will have to print money to bail them out. If FED cut interest rates, this would help consumers and banks refinance, and calm the markets. Not that we are out of trouble, we are in extreme dire straights, its just a question of how bad and when. If you do some research on the '29 crash, the parallels are uncannily similar to today. FED had series of low rates, home-builders had flooded market and easy money helped finance. However, the difference in '29 (which caused FED to raise rates) was the U.S. dollar was on the GOLD standard. Since we are no longer on the gold standard, the situation is quite different as to what the FED will do. If other banks start to raise jumbo rates, I think this will spook a lot of consumers as I would perceive this that those who are raising rates are doing so because they are most vulnerable / risk of sub-prime. Irrespective of what the FED does or doesn't do, the dollar will be in a free fall as our economy goes to hell in a hand-basket. If FED raised rates, and we are heading into a recession, it will take much longer to pull out. Consumers have to spend to keep the economy going, if they are unwilling or rates are to high, big ticket items will slow down and not only the banks but other sectors will fall prey, the next to go will be the auto industry. This sector is already at risk due to high competition from overseas, imagine if Ford, GM suffer same delima as Home-Builders and have to lay off tens of thousands of employees. The more I research this issue, the more I am convinced we are headed for a major collapse... we could still have a blow-off top in the DOW, 18,000 is a possibility. Its difficult to say right now. If you have access to a '29 chart of the DOW, you can see we are tracing out the exact same pattern, in '29 we did have a blow-off top. Then the DOW retraced all the way back to the bottom, this would call for the DOW falling all the way back to around 1800. The amount of monies lost, devaluation of companies and real estate will be catastrophic. Then the FED, to salvage the dollar may have to revert back to the gold standard.
"Consumers have to spend to keep the economy going, if they are unwilling or rates are to high, big ticket items will slow down and not only the banks but other sectors will fall prey,..."
I agree with most of what you said, but the facts are that the consumer spending fell in half from 1Q to 2Q, and durables are significantly off as well. In case you didn't hear - car sales are down also. I think you understand the likely chain of events, but just don't realize how far it's already gone down that road. That's why I offered the image of empty mall parking lots - it's already started now. Last Christmas I shopped for gifts at a huge mall in Temecula, had to walk a good distance from my parking space. Bet $20 I can find a spot near the door in 2008.
As far as a Fed rate cut is concerned - IT'S TOO DAMNED LATE!!!! That's what happened in Japan, Duh!
"William McChesney Martin, the Fed chairman from 1951 to 1970, memorably said, �The job of the Federal Reserve is to take away the punch bowl just when the party starts getting interesting.� In other words, the Fed needs to set interest rates high enough to prevent the economy and markets from becoming overheated, but not so high that they dampen economic growth unnecessarily."
"Jared Bernstein, senior economist at the Economic Policy Institute said he hopes the Fed considers lowering interest rates this fall, not to help Wall Street and hedge funds, but to lower the risk of an economic slowdown that would hurt middle-income Americans."
I see hedging isn't just for funds anymore, we can hedge our words as well. Hmmm .... maybe he would like to explain how a 100 or even 150 pt. drop would help middle-income Americans sell homes when mortgage rates are climbing and a flood of REO's are going to hit the market?