Torygraph: Bernanke will make things a lot worse by repeating Greenspan's mistakes

WTF?_2

More opinion coming out against poorly thought out, panicked rate cuts:

http://www.telegraph.co.uk/finance/comment/liamhalligan/3363138/Ben-Bernanke-will-make-things-a-lot-worse-by-repeating-Alan-Greenspans-mistakes.html

Last week the Federal Reserve cut US interest rates by another 50 basis points. In little more than a year, they have fallen from 5.25pc to 1pc. Now, more than at any time since FDR was in power, we need that rate cut to boost America's economic prospects. But the Fed's latest move will harm the US and, in turn, the rest of the world.
..
I take my life into my hands as I venture this – but are US base rates of 1pc really the answer? I would argue emphatically not.
Rates hit 1pc after 2001/02, when then Fed chairman Alan Greenspan swung his monetary chainsaw willy-nilly. And that unleashed the biggest credit bubble the world has ever seen. I thought we all understood that. However, now Ben Bernanke risks repeating his predecessor's mistake.
In the US and across the world banks aren't lending to each other due to fears about the hidden sub-prime toxic waste that lurks on each other's balance sheets. Cutting base rates does nothing to curb that problem.

..
Dollar Libor has eased only very slightly in recent weeks as the banks have started lending out the government's bail-out money. We will see if the interbank rate keeps falling when the banks return to lending their own cash, once the bail-out pot runs dry.
Almost every economist I know backs the Fed's latest emergency rate cut. Even if they accept the arguments which I have laid out above, they claim that Fed chairman Mr Bernanke has stopped America's situation from getting worse.
Really? The US still has a big inflationary problem. And now we have both a monetary and fiscal policy that is wildly expansionary. That could easily spark more inflation, despite the economic slowdown, undermine real income and prolong America's slump.

Good to see some people in the media thinking for themselves and prepared to put it in the mainstream.

Generali

The biggest problem the US faces at the moment is that the Fed isn't 'sterilising' their bond issuance. Normally, when the Fed issues debt on behalf of the Federal Government they credit the Government's bank account with $x and sell $x of bonds: the money that is given to the Government is taken out of private investors' pockets with the promise that it will be returned with interest. Overall, no new money is created; it is merely moved from a bunch of investors to the Government.

However, bond issuance has fallen behind the quantity of money that has been issued to the Government. At present the assumption is that this is a temporary lag that will be resolved in the next couple of months. If it isn't however, all hell will break lose in the bond markets.

phil_b_2

I can't see the sense in the rate cuts. It's more damaging in the bigger picture, and in the smaller picture people won't notice the savings much anyway. For those on tracker rates who will be lucky enough to have the cut passed on will only save about £40 a month on a £100k intertest only mortgage. Big whoop!
I can't imagine it going far towards getting the books of failing business back in the black either.

whether you're an indivisual or a business, If you're struggling in this current financial crisis the latest rate cut won't do much of anything to save you surely?

Boosting sentiment and confidence for borrowing is just sending us in the wrong direction.

WTF?_2

What we need is borrowing to be available to 'deserving' customers, at a reasonable price.

Simply chucking money at the banks and cutting rates to the bone isn't going to deliver that. The hope is obviously to provide so much liquidity that it results in cheaper lending and the shotgun effect means that some of it hits the proper targets.


However, the markets are telling us that this business of using dodgy, unfathomable financial instruments to credit trillions of dollars worth of credit which are then loaned out to anyone with a pulse - and return to a model where lending is based on the amounts of money that others have saved.

Not that any of this seems to be impacting on the minds of 'The Powers That Be' - who incidentally are the same people who came up with the economic policies that got us into this almighty mess and who have singularly failed to see it coming until we were into the middle of the biggest financial crisis of modern times. All they can think of is trying to return to bubble lending using other methods (public money and even just printing it up).

ad44downey

Having interst rates at 1% is unbridled lunacy. The US will have the rampant inflation of a banana republic a few years down the line

Generali

ad44downey wrote: »

Having interst rates at 1% is unbridled lunacy. The US will have the rampant inflation of a banana republic a few years down the line

The US having interest rates at 1% won't create inflation. Them not steralizing bond issuance will. It may even create hyperinflation which is very very bad news for all of us for 2 main reasons:

1. The US is the largest economy in the world. If it is weak we are all weak.

2. The US has a massive army, navy and airforce and a huge number of nuclear weapons. Countries undergoing hyperinflation have a history of electing mad people into power. Fancy a modern day Hitler in charge of the firepower of the US? [yeah haha, insert Bush joke here]

GDB2222

Generali wrote: »

2. The US has a massive army, navy and airforce and a huge number of nuclear weapons. Countries undergoing hyperinflation have a history of electing mad people into power. Fancy a modern day Hitler in charge of the firepower of the US? [yeah haha, insert Bush joke here]

Sarah Palin? :rotfl: :eek: :eek: :eek: :eek: :eek: :eek: :eek: :eek: :eek: :eek: :eek: :eek: :eek: :eek: :eek: :eek: :eek: :eek: :eek: :eek: :eek: :eek: :eek: :eek: :eek: :eek: :eek: :eek: :eek: :eek: :eek: :eek: :eek: :eek: :eek:

neverdespairgirl

Nah, Hitler won the election....

GDB2222

neverdespairgirl wrote: »

Nah, Hitler won the election....

Let's hope you are right, because no wolf will be safe if Sarah Palin starts hunting them with cruise missiles.


For something more sporting, a Hellfire missile, can be fired from one of those unmanned reconaissance aircraft. Perfect for wolf hunting - see here:
http://uk.youtube.com/watch?v=RHPVDRXKGfc

kennyboy66_2

"Almost every economist I know backs the Fed's latest emergency rate cut.",

But the author has to fill space so may as well spell out the opposite view.
After all, journalists need to eat.

The economic logic & empirical evidence of previous recessions all point to the fact that lower interest rates are one of the tools you need to use.

Admit it, wanting higher rates is just wanting revenge,

napoleon

kennyboy66 wrote: »

"Almost every economist I know backs the Fed's latest emergency rate cut.",
,

Yeah, the very same economists whose policies caused the financial crisis in the first place. And you believe what they say now? :rotfl: