Turmoil in financial markets, FED cuts 3/4 in emergency move

[Skybird]

The Fed'S cut of interest rates is only trying to hide the sympt0m, but does not go fpor curing the cause. So, those 0.75% is not of lasting importance at all. what must be done is first to stop printing dollars like crazy, and second cure the ill finances of america and get the budget as well as the trade balance right again. And both will not happen soon since it would mean to give up some global privileges one got used to, and to admit that the economical "developement" of the past years was just on tick. No "patriotic" politician will easily dare to say that, fearing that he will be called a pessimist and a weakling. that's why the mortage crisis will be intentionally and knowingly given much more time to unfold it's negative consequences on more and wider sectors of the american finances and economy, and global finance markets as well.

I expect a certain solid consolidation of the financial turmoils not before second half of this year, and first American and then global economy running by a state of recession, which then again will enflame the finacial troubles again in the forseeable future. Unemployement went already up by 0.5%, which many economists agree to be a reliable indicator for a recession unfolding.

Don't buy stocks, guys - better earn your money in an honest and respectable way!

If america really wants to do the global economy a favour, it needs to fix it deepley rotten state finances, baölance it's trade deficits, stop pushing inflation, and fighting globalisation instead of exporting it's jobs into "offworld" nations. What we see now, gentlemen, is the logical conseqeunce of a.) too easy credits which enabled Americans to spend more than they could afford, and b.) the globalisation which was once pushed and propagated by america itself. If this can be stopped and reversed, is qauestionable, because the economic keyplayers are no longer attached to nations, but act independantly and internationally now, avoiding the legislation and responsibility towards nations that once has brought them up. they are no longer linked to one or a few nations, but now have established themselves as a second entitity beside nations and their international orgnaisations, independant from nations and their national control mechanism. Such corporations are able to keep states and governments in dependence and thus make policies in favouir of themselves, and absuing nation'S and people'S interests. that is nothing you should complain about, if you argue in favour of a capitalistic order - capitalistic economies do not know nationalistic sentiments. This tred was forseeable, and should and could have been known in advance, when the term "globalization" was started to be propagated. Instead, those warning of these things were called pessimists, and were laughed about. Today, nobody laughs anymore. So, we are just sufferign the consequences of our own misdeeds, and we suffer them well-deserved.

Several dozen billion dollars have already been annihilated in the past 8 weeks. Several hundred billions more will follow in the next 6 months. Switch on the money printing machines will not do any good, just make things worse by pushing inflation even more. While there will be a superficial calming of financial markets in the next weeks, and while one also must see that today's troubles were also a needed correction of the hyped stock markets in Asia and especially china, the principle problems of america affecting all the globe's economy remain. It is here were one has to start with the major efforts to adress things, and it is crucial to do so, because as I see it we are walking on the borderline of probably the gbreatest recession since the crisis of 1929. such corrections wil affect americans, yes. But they will also affect citizens around the globe, and their nation's economies. Economical growth as we have seen it in the imminent past will pause for a longer time to come - with all the social and communal conseqeunces coming from this.

[Ducimus]

I have a feeling more "tax breaks" are forthcoming from Junior. Yeah, like thats going to help. Lame.

[Stealth Hunter]

I'm giving it 3 more months. If we get on the very edge of total failure, screw this. I'm going to Germany until things pick up (my brother, Massut, lives there; I'll stay with him in Berlin).

[GlobalExplorer]

Originally Posted by Stealth Hunter

I'm giving it 3 more months. If we get on the very edge of total failure, screw this. I'm going to Germany until things pick up (my brother, Massut, lives there; I'll stay with him in Berlin).

Yeah it's a nice town and we can put up refugee camps over here when they are all coming

[JSLTIGER]

Originally Posted by GlobalExplorer

Yeah it's a nice town and we can put up refugee camps over here when they are all coming

Just keep in mind that if the US economy collapses, the rest of the world will follow shortly...that's the nature of globalization...

[Skybird]

Originally Posted by JSLTIGER

Just keep in mind that if the US economy collapses, the rest of the world will follow shortly...that's the nature of globalization...

Yes. Why do you think china and europe are so angry about America not fixing it's problems, instead continuin to live on tic? It is our money you are pulverizing, and it is our economies you pull into the abyss along with you.

So far many people thought the great crisis would come when China starts to abandon it's dollar reserves (what they alrerady have started in silence). That they would abandon their dollar reserves because there is a crisis and they do not see why they should be expected to accept the loss of hundreds of billions of dollars in value - is a relatively new thought. In Germany we are so far now that the American crisis again starts to effect our employment rates, and tax expectations and growth rates get reduced for this year as a conseqeunce from the turmoils.

I don't know if this is the beginning of the great crisis that I am expecting since two or three year to come sooner or later, but I understand that it is a crisis that will stay with us for a longer time to come. If somebody thinks "just three more months and then we are through", he better starts thinking twice. Even when the markets stabilize a bit in the imminent future (and they will), it does not mean that it is over: the basic problems so far are almost totally untouched.

Also this: http://www.spiegel.de/international/...530416,00.html

But it's also becoming clear serious trouble is brewing in Europe's own backyard. From rising labor costs in Germany, to precarious housing markets in Spain, to a painful credit crunch in Britain: "There's a serious weakening of the European economy...going on, independent of what's happening in the US," says Laurent Bilke, a London economist at Lehman Brothers.

Ominous signs are everywhere. The euro zone inflation rate hit a six-year high of 3.1 percent in December, and German unions are negotiating hefty wage increases that could send it still higher. After a prolonged property boom, Britain is now struggling with its own version of the US subprime crisis. "Exactly the same [kinds of] mortgages were sold to British investors, and that will start to hurt the financial-service sector," says Ian Harnett, managing director for European strategy at Absolute Strategy Research in London.

Old World corporate earnings look set to slide, too. Goldman Sachs is forecasting profits at European companies will drop 5.5 percent this year as they struggle with inflation, tight credit, and the strength of the euro, which cuts deeply into the competitiveness of European exports.


Financial troubles in the US have exacerbated these problems. The subprime crisis has clobbered Europe's financial sector, with banks such as Switzerland's UBS and Britain's Barclays and Royal Bank of Scotland taking huge writedowns in recent months The US also has allowed the euro to rise relentlessly against the dollar -- and the Fed's rate cut could fuel an additional rise. Every 10 percent rise in the euro's value against the dollar knocks 3 percent off euro zone corporate earnings growth, Goldman Sachs estimates.

[Skybird]

Morgan Stanley's Steven Roach:

Will the Fed rate cut work?

Posted by: Stephen Roach, Chairman, Morgan Stanley Asia
Timing is everything, I guess. No sooner had I arrived in Davos, when my Blackberry started chirping with alarms over an emergency 75 basis point Fed rate cut. No new news on the state of the US economy was evident. The only breaking development was a swoon in global equity markets that was likely to be reflected in the form of a similar plunge in the US. And so the Fed jumped into action. Borrowing a page from the market-friendly script of the Greenspan Fed, Bernanke & Co. offered up a market-friendly action of its own.
Will it work? That’s undoubtedly the question that will be hotly debated this year in Davos – a question that I certainly plan to tackle at the opening session on the global economy tomorrow (Wednesday) morning.
The answer lies in the unique character of this recession. There are two triggers - a bursting of the US house price bubble and a bursting of the credit bubble. I do not believe that aggressive Fed rate cuts will resolve the extreme imbalance between supply and demand in the US property market that will be pushing housing prices lower for some time. Nor do I believe that recent Fed actions will restore the functioning of credit markets to their pre-crisis state. As a result, pressures are likely to remain intense on housing - and credit-dependent US consumers - a sector that accounts for a record 72% of US real GDP.
In essence, the Fed is "pushing on a string" here - unable to stop the recessionary dynamic now unfolding. But there will be consequences in the next recovery. Unfortunately, the US central bank can’t seem to break out of the market-friendly trap it fell into nearly a decade ago Panicking over the possibility that yet another bubble is bursting, the Fed is once again injecting liquidity into an asset-dependent US economy. That won't arrest the recessionary dynamic now unfolding but it could well set the stage for the next asset bubble in America's bubble-prone economy. Have we learned anything from the mess of the past seven years?


01/22/2008
worth some readers' comments:
http://blogs.ft.com/davosblog/2008/0...he-fed-ra.html

Agreed, that guy is not liked for having a reputation of being a pessimist. But what is pessimism for some, is realism for others. I myself do not read him often in German press, but when I do, I have learned it is worthy to listen closely. He is right - damn often.

And while we are at this guy, and since globalisation has a lot to do with your economic problems, this, from the same site:

Dcoupling or globalisation - but not both

Posted by: Stephen Roach, Chairman, Morgan Stanley Asia
Dreams of decoupling danced in the air on this first official day of meetings at Davos. Decoupling, of course, is the latest macro fad - a scenario where the world no longer sneezes when the US catches a cold. The decoupling enthusiasts were out in full force at the kick-off session on the global economy on Wednesday morning. As a long-standing panelist in this session - with the exception of last year, when only optimists were invited - I didn’t offer much support for this view.
My case is relatively simple. Developing Asia - where the growth dynamic is the strongest and the hopes of resilience are the deepest - remains very much an externally-dependent economy. For the region as a whole, exports hit a record high of 46% of GDP in 2007 - more than double the 19% share of 1980. At the same time, private consumption fell to a record low of 48% of pan-regional GDP in 2007 - down sharply from the 66% reading in 1980. If the fast growing economies of East Asia were truly decoupled, these trends would be the opposite - exports would be falling and domestic consumption would be rising.
The decoupling crowd also dreams of alternative sources of global consumption arising from Asia’s two new giants - China and India - that would be more than sufficient to offset a shortfall in US consumption. Don’t count on it. The US consumed over $9.5 trillion in 2007 - fully six times the combined consumption totals for China ($1 trillion) and India ($650 billion). It would be almost mathematically impossible for "Chindia" to fill the void that is likely to be left by a consolidation of the American consumer. For externally-led Developing Asia, the proverbial sneeze in the face of a US cold is more likely than not. Maybe that’s what the recent sharp correction in Asian equity markets is all about.
In the Q & A part of the session, howls of protest came from representatives of Latin America, Central Europe, and even Asia. The European decoupling advocates accosted me in the halls outside the session. Yet globalization, long the mantra of Davos, is all about increased integration of the global economy through trade and capital flows. As I said to one of the more hopeful: "You either believe in decoupling or globalization - but not both."

[mookiemookie]

The subprime debacle is working its way through the system. I've always believed that situations like this, the bankruptcy of Orange County in 1994, Enron in 2001/2002, et. al. need to happen in order to reform things. In the wake of these events come increased accountability, oversight and regulation that ultimately make the system stronger. It's the nature of the financial markets to find a loophole and exploit it...it's endemic and will never change as it owes much to human nature. But as I said, it serves to highlight the weaknesses in the system so that they can be addressed.

The dollar is what it is. Just a few short years ago there was much hand wringing about the strength of it. Now the worm has turned. And you can thank the mahoosive deficit spending that Bush has initiated for that. It's an elementary economic fact: a budget deficit will lead to downward pressure on a country's currency. It's neither sudden nor unexpected. I think we'll see a rebound in the dollar when the budget is balanced and we reign in spending. Almost certainly not going to happen under this administration, but it will happen.

China has a vested interest in the dollar. Not just because the yuan is pegged to it, but because we are one of their largest export markets. If they enact a mass dumping of their dollar reserves, it will be cutting off their nose to spite their face as their exporters will be the ones to feel the pain. I seriously doubt that they'd be willing to take that sort of hit to their GDP in order to prove a point or declare economic war. They have their wagon hitched to us just as much as are hitched to them. When you hear of Chinese officials grumbling about dumping dollar reserves, take it with a grain of salt. Many of the ones making these comments are in no position to set China's monetary or reserve policy.

[Skybird]

Originally Posted by mookiemookie

I think we'll see a rebound in the dollar when the budget is balanced and we reign in spending.

Budget balanced? Today they announce the latest budget - with a deficit of 250 billion, after 163 billion last year. And Bush already wanted another additional 140 or 150 billion for suspicious tactics to fuel economic growth - this money even is not included in the deficit so far.

Not to mention the state's debts of over 9 TRILLION.

[mookiemookie]

Originally Posted by Skybird

Budget balanced? Today they announce the latest budget - with a deficit of 250 billion, after 163 billion last year. And Bush already wanted another additional 140 or 150 billion for suspicious tactics to fuel economic growth - this money even is not included in the deficit so far.

Not to mention the state's debts of over 9 TRILLION.

I never said it would be easy. We had a balanced budget before Georgy boy took office....it can be done.

[SUBMAN1]

Originally Posted by Skybird

...Don't buy stocks, guys - better earn your money in an honest and respectable way! ....

Dumbest idea I've heard out of you yet.

Analyze your mutual funds. You will find some dating back through the Great Depression and still averaged 13% to 14%.

I can see that you will live your life a poor man forever, based on your philosophy's and ideas. One day, maybe you will wake up out of your doom and gloom mindset.

-S

PS. Saving money the old fashioned way as you describe is the path of the poor. Just a little clue for you.

[Peto]

Definition of Economic Stimulous Package: Something US Politicos create months after realizing the need for it.

They're trying to close the barn door but many of the cattle (the smart ones) are already grazing in another pasture. And the rest of the herd is hitting the exit at a run. It'll take more than a gaggle of beurocrats to shut this door.

Economic Stimulus "checks" won't be in the mail until June "at the earliest" (IRS quote). And if everybody got a 1000 bucks, they'd spend it and it would be gone. That "might" help the economy--for about 1 month.

To fix the problem, it is necessary to get to the root of it--devaluation of the dollar and looking outside our borders for an inflow of cash o bail out our eroding banking institutions. Outside currency may float the bank for a while but it ultimately serves to further devalue the dollar and destabalize our economic structure. It's a means of selling the rights of your home loan to a foreign investor.

The financial track we (and I mean all of us) are on is a spiral heading down.

I'd like to blame all of this on GW but the current problems are more the result of social and cultural behaviors. Society has gravitated toward "instant gratification". If you want it and can't afford it then charge it. It'd be cool to own my own home so I'll sign that floating interest rate loan and worry about what it means as I meet foreclosure. With the average household credit card debt being so high and always rising, it was just a matter of time before the rug slipped out from beneath us.

Living on credit means you are dependant that your lender can remain financialy solvent. When those institutions slide, they sell off their debt to another entity. Each step in the cycle takes more control away from you being able to do anything about it. Demands for payment increase causing further stress on an already tremulous situation. And it all spins down to a growing percentage of people who can't pay their bills which forces financial insitutions to more desperate measures to stay solvent. Round and Round. And each time around it sinks a bit further.

Spending trillions on unnecessary war that was supposed to be paid for by somebody else' oil revenue hasn't done much to help the situation. The inept handling of the US economy in the last few years has served very well to polish our economic frailties and push us closer to the edge of the cliff. There is a tipping point between recession and depression. Don't think it can't happen again.

History does repeat itself.

[SUBMAN1]

Yawn. Sliding dollar is good in my book. Fixes many problems in the US.

All economic signs are stable, so most of this is hyped up media BS.

Housing market is at a foreclosure rate of what? 0.5% increase out of all loans? More media hyped up BS.

I guess all this sells papers.

I do agree that Ben Bernenke is an idiot as a Fed Chairman since he is not only as predictable as he is reactionary. Greenspan was a genius by comparison and totally pro-active. Bernenkes reactionary and predictable style allows wall street to predict what he is going to do, and expect him to bail them out when they screw up. Greenspan forced them to stand on their own two feet.

Anyway, all the above except for Bernenke will have no affect on the economy. Bernenke however is where you might see a disaster start. He has the capability to cause a recession or worse based on poor performance.

-S

[Peto]

Originally Posted by SUBMAN1

Yawn. Sliding dollar is good in my book. Fixes many problems in the US.

All economic signs are stable, so most of this is hyped up media BS.

-S

Dreamer.

This said by a person who said that 3500 killed soldiors is great and a drop in the bucket. And then didn't have the balls to retract even a part of your statement.

Join the human race and I may think of you as something above the bigot you appear to be.

EDIT: However, I will agree with you that Greenspan was a Genius. He also has said we're heading for serious economic problems.

[JSLTIGER]

A weak US$ can be very dangerous...