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Fed cuts rate to zero

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Re: Fed cuts rate to zero

Unread postby smallpoxgirl » Tue 16 Dec 2008, 21:42:06

$this->bbcode_second_pass_quote('MrBean', 'A')nd how low can T-bill yield go before they bottom? Especially if and when Fed starts buying them?


They were into negative interest on the last auction. I guess now we play the "How much will you pay the fed to hold your money" game.
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Re: Fed cuts rate to zero

Unread postby Snowrunner » Tue 16 Dec 2008, 22:05:45

$this->bbcode_second_pass_quote('evilgenius', 'I')t will taken until well past 2010 to build an economic model where there is enough money in consumer's hands for any company to pass along price increases. To have the kind of inflation everybody is worried about you have to build the ability to pass along price increases into the system. Oh, how the mighty have fallen!


There's a bigger problem. The Banks won't pass the liquidity on. The Fed can try to bypass them by giving money directly to companies, but I doubt they'll give money directly to Joe Shmoe.

As such, for banks to even be willing to part with any of the Dollars they receive they would need to be confident that they could survive the failure of re-payment. As such what is the leverage right now? 30:1? In order to be on the safe side my guess is that banks would like to see at least a 25% "buffer" over their levage, so you are looking at what? 37x the amount of money in the system than there currently is?

If the Fed really pulls through with printing money to "offer liquidity" then the game really is over because they won't be able to claw that money back out of the system once it's in there.
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Re: Fed cuts rate to zero

Unread postby gollum » Tue 16 Dec 2008, 22:13:16

The game is ending, one way or the other. My bet long term is still on inflation, no bankrupt government able to print money has ever resisted the temptation.
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Re: Fed cuts rate to zero

Unread postby ColossalContrarian » Tue 16 Dec 2008, 22:49:00

$this->bbcode_second_pass_quote('evilgenius', 'I')t will taken until well past 2010 to build an economic model where there is enough money in consumer's hands for any company to pass along price increases. To have the kind of inflation everybody is worried about you have to build the ability to pass along price increases into the system. Oh, how the mighty have fallen!


Agreed +1

People like to bring currency type into the game as if it matters. Purchases aren’t being made in ANY currency. Zimbabwe, Euro, Dollar. Nobody’s spending money because massive amounts of money are vanishing daily.
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Re: Fed cuts rate to zero

Unread postby InToWishin » Tue 16 Dec 2008, 22:58:29

If you have a salary that's being inflated and a fixed mortgage you stand a better chance of paying it off, right? One day a hot dog costs $10,000 so if you diet you could pay extra principle instead, right?
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Re: Fed cuts rate to zero

Unread postby glowring » Tue 16 Dec 2008, 23:08:43

$this->bbcode_second_pass_quote('Revi', 'W')hat does this lowering of interest rate do? 1/4 of one percent is a pretty low number. I guess if you get it that cheap you can lend it at 2% and still make money.
The Fed is desperate for people to take their dollars. All the "quantitative easing" (printing money) and there still aren't any takers. What's going to happen now?

If they pay me interest, I'll take the money....
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Re: Fed cuts rate to zero

Unread postby MrBean » Tue 16 Dec 2008, 23:09:53

$this->bbcode_second_pass_quote('ColossalContrarian', '')$this->bbcode_second_pass_quote('evilgenius', 'I')t will taken until well past 2010 to build an economic model where there is enough money in consumer's hands for any company to pass along price increases. To have the kind of inflation everybody is worried about you have to build the ability to pass along price increases into the system. Oh, how the mighty have fallen!
Agreed +1
People like to bring currency type into the game as if it matters. Purchases aren’t being made in ANY currency. Zimbabwe, Euro, Dollar. Nobody’s spending money because massive amounts of money are vanishing daily.

If consumption is dropping by 5-50%, that leaves still 95-50% spending in some currency. US dollar tanking against other currencies means imports (like oil and everything made from it) get more expensive for the US industry and consumer -> price inflation. My guess is that dollar collapse will be one of the big stories of next year.

You can have both asset deflation and price inflation at the same time. Meaning that what little the little guy saved or owned has no more value and he can't afford to buy basic necessities with his unemployment check.
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Re: Fed cuts rate to zero

Unread postby Kristen » Tue 16 Dec 2008, 23:26:53

Should I shoot myself now or later?
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Re: Fed cuts rate to zero

Unread postby smallpoxgirl » Wed 17 Dec 2008, 00:02:07

$this->bbcode_second_pass_quote('MrBean', ' ')My guess is that dollar collapse will be one of the big stories of next year.

That's certainly true if today is any indication. The US dollar index is down 2.5% today. Silver is over $11 and Gold is over $850 for the first time in over two months.
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Re: Fed cuts rate to zero

Unread postby InToWishin » Wed 17 Dec 2008, 10:08:34

$this->bbcode_second_pass_quote('smallpoxgirl', 'B')reaking news. The fed has cut it's rate target to from 0 to 0.25%.

Very deceptive thread title. It should say "rate target" not "rate" since that is what the article is about.
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Re: Fed cuts rate to zero

Unread postby Jotapay » Wed 17 Dec 2008, 10:26:39

$this->bbcode_second_pass_quote('ColossalContrarian', '')$this->bbcode_second_pass_quote('evilgenius', 'I')t will taken until well past 2010 to build an economic model where there is enough money in consumer's hands for any company to pass along price increases. To have the kind of inflation everybody is worried about you have to build the ability to pass along price increases into the system. Oh, how the mighty have fallen!
Agreed +1
People like to bring currency type into the game as if it matters. Purchases aren’t being made in ANY currency. Zimbabwe, Euro, Dollar. Nobody’s spending money because massive amounts of money are vanishing daily.

That is what I have been planning for this entire year. I don't see a bottom until the end of 2010, at the earliest, maybe 2011. I'm planning for it to get continually worse economically speaking up to that point, and then I'll survey the landscape and make some long-term decisions then. I'm just prepping for the ride down at the moment and hoping to survive it like everyone else.
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Re: Fed cuts rate to zero

Unread postby Jotapay » Wed 17 Dec 2008, 10:28:48

$this->bbcode_second_pass_quote('InToWishin', 'I')f you have a salary that's being inflated and a fixed mortgage you stand a better chance of paying it off, right? One day a hot dog costs $10,000 so if you diet you could pay extra principle instead, right?

Theoretically. Never underestimate the power of banks to change the rules in their favor, though. Don't think for an instant that they will allow themselves to lose so much money to inflation, relatively speaking, when they have this country's government in their back pocket.
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Re: Fed cuts rate to zero

Unread postby smallpoxgirl » Wed 17 Dec 2008, 10:30:53

$this->bbcode_second_pass_quote('InToWishin', 'V')ery deceptive thread title. It should say "rate target" not "rate" since that is what the article is about.


When people talk about "rate cuts" by the fed, that's what they mean is the fed funds rate target. It's the rate at which banks lend their balances on deposit with the fed to eachother on an overnight basis. Because it's banks lending to eachother, the fed doesn't have direct control over it. The fed uses other mechanisms to adjust the money supply and bank reserves with the goal of getting banks to lend to eachother at the specified rate. Google "fed rate cut" and you will find scads of articles about yesterdays action.
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Re: Fed cuts rate to zero

Unread postby Jotapay » Wed 17 Dec 2008, 10:33:51

$this->bbcode_second_pass_quote('MrBean', 'M')y guess is that dollar collapse will be one of the big stories of next year.


Peter Schiff and I both agree with you.

I don't pretend to know for sure if it will be 2009, but it will be sooner than we like when it eventually happens. The current mechanics of the dollar, our national budget, the big drivers of our GDP, are all completely unsustainable. The harder they try to continue the status quo, the harder it will fall when it eventually does fall.

Make sure you have enough food and whatnot at home when it does fall. Store shelves may have much less product on them then because imports will be next ti impossible then.
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Re: Fed cuts rate to zero

Unread postby Jotapay » Wed 17 Dec 2008, 10:35:00

$this->bbcode_second_pass_quote('Kristen', 'S')hould I shoot myself now or later?

I have a better idea. You can just be my slave for labor and whatnot and I'll give you protection and some food. :) Just kidding, of course.
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Re: Fed cuts rate to zero

Unread postby Jotapay » Wed 17 Dec 2008, 11:08:16

$this->bbcode_second_pass_quote('MrBean', 'M')y guess is that dollar collapse will be one of the big stories of next year.

I'm going to post what I just read on another forum. It falls in line with your comment. I have been reading warnings for several years like what this Ukrainian has posted and I think they are sound. It is just a matter of time before the dollar becomes worthless and our economy literally will be deader than fried chicken. It's not too far off.

$this->bbcode_second_pass_quote('', 'I')'ve lived through one of the most severe hyperinflation episodes in history (1993-1994 Ukraine). The inflation hit 10,000% in 1994. I think people in US fundamentally misunderstand inflation and why US today enjoys relatively low inflated dollars.

If you see the M3 nearly doubled over past 7 years... when the liquidity and velocity were relatively high... you still don't see 50% of inflation effects. Why? Because US policy was and is to export the inflation to stabilize the dollar, which should be severely inflated. That's the genius of the US financial system... exporting and hooking other economies on dollar, while getting the real products in return... and then due to the IMF policies, the other central banks around the world can only print so much money as they have dollars in reserve. Why do you think US is so generous with that "financial aid" to the other countries?

Unfortunately, the economists are taught not to pay attention to the "magic factors". All of the basics are dropped for the mumbo-jumbo rhetoric that mean nothing if you understand fundamentals. If you throw rock up high, it will come flying down. That's fundamental, and the only way it will not is someone catches it before it does fall.


US will experience hyperinflation , and here's why.

1) The classic definition of inflation takes into consideration the supply of goods to the relative supply of money. Since US economy produces very little goods, and mostly services... during the times of hardship, the services go out of the window... and demand for basic needs skyrocket. If the foreigners will stop exchanging their labor for paper and digits.... You will begin to see that really soon. And it will happen sooner than later as the information spreads around the world. I see about a dozen Russian documentaries that are playing on national tv in Russia that question why would the world feed and dress the US in exchange for inflated currency domestically.

2) The Fed policies are inflationary. I can't listen to the radio anymore. Either the US economists ate too much of their own lies that they now believe it, or they are idiots... or both. WEALTH DOES NOT GET DESTROYED! It's an insane notion. I'm tiered of hearing about trillions wiped out in the markets! If suckers lost money... they've lost it... someone else got rich by shorting. Markets do not create/destroy wealth!!!!!! It's a mechanism of exchange for crying out loud! If someone bought overvalued goods... they loose money, and the seller gains. It's as simple as that.

3) The money mechanics in the US is effectively deflationary if credit lines are cut. People have to pay back principal with interest when they borrow money... so more money will be going out than coming in.

That's what you are observing right now. The credit lines are cut, or people who can... simply pay back the debt with interest. SO, it looks like we have a steady "deflation" in times when credit inflow is cut... as people have to pay back more than they borrowed... and the banks are hoarding the cash to stay afloat. BUT

The inflation/deflation principles work fine in the fundamental economies. US is a magic economy that made the rest of world believe that dollar is worth holding on to. But the world now slowly beginning to see that it's not, and that they are slaving away for nothing. There will come a day sooner than later, when people will begin dumping dollars like there's no tomorrow. You can begin to see that taking place in South America, as the money changers won't caught dead with dollar. And when foreigners would not even want it as free aid... then you will see what the US economy really is.


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Re: Fed cuts rate to zero

Unread postby GoghGoner » Wed 17 Dec 2008, 11:34:25

Well, when I spent a couple of months in Japan during 1990, I remember the exchange rate of 141 Yen to 1 USD. Today, the rate is 87 Yen to 1 USD. We are getting very close to doubling the price in US dollars for Japanese goods.
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Re: Fed cuts rate to zero

Unread postby patience » Wed 17 Dec 2008, 17:39:54

I can't see any other end to the US plight than the dollar collapsing relative to other currencies. Then, we have Iceland's problem, right? What indicators should we be watching? I don't understand enough to read the road signs along this route, but I don't want to be caught unawares.

The US Dollar Index fell again today to 78.6, from 86+ about a week ago. That looks bad to me. US imports are going to go up fast. Anything else I need to know about?
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Re: Fed cuts rate to zero

Unread postby Jotapay » Wed 17 Dec 2008, 18:30:30

$this->bbcode_second_pass_quote('patience', '1'). Then, we have Iceland's problem, right?
2. What indicators should we be watching?
3. Anything else I need to know about?


1. Yes but we grow and produce more than Iceland does. We grow more crops than any other country. But if we can't import oil with a worthless currency, the tractors and fertilizer won't be there for the farmer.
2. US troops prepositioned on the streets.
3. Buy enough food and ammo? A bicycle? If you have surplus cash beyond what is needed for daily expenses I would just buy gold with it and exchange the gold back to currency once the panic is over in a few years.
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Re: Fed cuts rate to zero

Unread postby MrBean » Wed 17 Dec 2008, 19:21:44

$this->bbcode_second_pass_quote('patience', 'I') can't see any other end to the US plight than the dollar collapsing relative to other currencies. Then, we have Iceland's problem, right? What indicators should we be watching? I don't understand enough to read the road signs along this route, but I don't want to be caught unawares.

The US Dollar Index fell again today to 78.6, from 86+ about a week ago. That looks bad to me. US imports are going to go up fast. Anything else I need to know about?


You need to know it's all in the plan. That's how Bernanke, the Man at the Wheel, stops deflation, by devaluation of dollar against other currencies, so that prices of imported goods go up -> price inflation. So have no worries, they know what they are doing. :)

Only PO doomers bother to wonder what might happen to real economy like farm production and people living in real economy looking for something to eat when US currency plunges and dollar nominated price of oil goes back up. And up and up.

Only PO doomers might wonder if economical wonder boy Ben Bernanke in his Master Strategery against Great Depression Deflation (fighting the last war) migh have forgotten the tiny detail that that time US was energy independent... and now is not.
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