Are big Fed Rate Cuts like happened today (-0.75%) Good or Bad for the long term economy?

[Up2Late]

Are big Fed Rate Cuts like happened today (-0.75%) Good or Bad for the long term economy?

Is this "artificial stimulus" a smart move or should the Fed just let the Markets "self correct" themselves?

I had alway heard the Recession is just a normal part of a Capitalist economy, so is this helpful, trying to stop the normal cycles. Personally, I think this is all being done to try to stop a deep recession with an election coming up, so is this good?:shrug:

[Demeter]

1. Very Bad

How do you think we got in this mess to begin with? Interest rates have been kept artificially low since.....Volker left the Fed.

[Up2Late]

2. That's what I was thinking too...

...thanks for the reminder.

[DJ13]

3. Very bad

Drives the dollar lower, which increases inflation.

Also these Fed rate cuts arent filtering down to the consumers where it would help our economy (whens the last time your credit card rate went lower).

The financial institutions are using these rate cuts to borrow money cheaper while maintaining consumer rates high, which is good for their bottom line but does nothing to ease the high credit costs that are the underlying cause of this crisis.

[unkachuck]

26. you mean....

....the corporations are looting the treasury again? They loot it through economic policy, they loot it through foreign policy, they loot it through monetary policy, they loot it through tax policy, they loot it through domestic policy, they loot it through social policy, etc., etc.,...

....do you think we'll EVER get a chance to use our own money for something we desperately need? Like Universal Healthcare?

[taught_me_patience]

4. Looks desperate

and desperation is not good for consumer confidence.

[OhioChick]

5. I Would Tend to Think Bad....

It's like putting a Band-Aid on a flesh wound. A SLOW bleed....

[Fresh_Start]

6. it means they are SCARED

which is never a good thing for an economy

My husband said, "oh shit, we're dead" when I told him about the rate cut

[NewJeffCT]

7. It's okay for the short-term, but it really sucks for the long-term

In the short-term, it will provide a bit of stimulus for parts of the economy and make things like mortgage refinances more affordable. The dollar will drop lower, and the short-term result will let foreigners buy up property & businesses here in the US. It will also help out foreign tourism industry - Europeans are already coming here thinking of the US as one big outlet mall.

However, for the long-term, it means higher inflation, possibly much higher, due to the weak dollar. The weak dollar will also allow foreign businesses to buy up a lot more American businesses and real estate, but nobody will want to buy actual American dollars. Then, to get people to buy dollars & US treasuries, we'll have to raise interest rates... which, in turn, stagnates the economy.

[Lone_Star_Dem]

8. What have the ultra low interest rates done for the economy so far?

Created a mountain of debt that threatens to collapse on consumers every time rates rebound in the least.

Artificially propped up our economy with credit that isn't backed with real wages.

Devalued the dollar and caused inflation.

In my opinion all this is doing is digging a deeper hole. By cutting rates inflation is being created which will force the Feds to raise rates in the future to curb inflation. Then we're just back to the beginning of the cycle.

Oh, and you do know they're already talking of another cut next week?

[Up2Late]

12. Yup, sounds like things a going great in Bush World...

...but it really sucks for the rest of us here in the Real World.:hide:

[Lone_Star_Dem]

23. You may find this interesting

Why the Fed can't save us
Bernanke and company are using up their limited ammunition, but there remain genuine problems with the low dollar and U.S. debt, argues Allan Sloan.

NEW YORK (Fortune) -- Forget all those rational explanations about about why foreign stocks markets, especially in Asia, have been melting down for two days. Despite what you've read, seen and heard, those declines weren't caused by fears of what a recession in the U.S. would do to the profits of companies whose stocks trade in places like India, China and Russia.

Rather, the meltdowns were flat-out market panics, where rationality gets tossed out the window as everyone tries to head for the door at once and gets trampled. Go-go markets, especially in Asia, had risen to ridiculous heights - they were going up because they were going up, and momentum fed on itself. Now, they're going down because they're going down, and momentum is feeding on itself again.

The fact that the Federal Reserve Board announced an emergency cut of 0.75 percent in short-term rates shows that the Fed thinks the problem is a market panic rather than economic fundamentals. Normally, the Fed would have waited until mid-day next Tuesday - the second day of its scheduled two-day meeting - to announce a rate cut. Announcing an out-of-schedule cut today before the stock market opened shows that its motivation is to calm the markets rather than to reinvigorate the U.S. economy.

<snip>

The problem is that the Fed has only a limited amount of rate-cut ammunition, and expended a lot of it today. It's expected by the markets to cut rates again next week, and will have used up most of its bullets.

<snip>

Look. We can't depend on the Fed - or any individual institution - to save us. The Fed isn't all-powerful - and wasn't all-powerful under Alan Greenspan, either. Current Fed Chairman Ben Bernanke doesn't have a magic wand he can wave to make everything all right on both Wall Street and Main Street. He's doing the best he can, but the Fed's influence isn't what it was when financial markets were much smaller than they are now, and far more regulated.

Because of its budget and trade deficits, the U.S. has to worry about what the rest of the world thinks. That's what happens when you're a debtor nation. There are huge risks in cutting short rates, and risks, too, in having Uncle Sam borrow another $150 billion to $200 billion (primarily from foreigners) to finance a short-term stimulus package.

The bottom line: In the long-term, markets are generally rational. In the short term they are...well, markets. They're prone to irrational run-ups and irrational declines. Don't expect them to act the way you want them to. And don't expect the Fed to save you if they don't.

http://money.cnn.com/2008/01/22/magazines/fortune/sloan_irrational.fortune/index.htm?postversion=2008012213

[hfojvt]

9. Good, or at least indifferent

"In the long run, we are all dead." John Maynard Keynes

The trouble with "self correcting" is that it can be awfully slow (see: Great Depression, The) and in the meantime there is a lot of human suffering, particularly among the poor. For Potter, it's an opportunity to buy things cheaply from desperate people (see: It's a Wonderful Life).

The Fed actions do not STOP the normal cycles, they just blunt them, make them softer, and shorter (see: soft landing). Think of them as a bullet proof vest, stopping the worst impact of a gunshot. As Koontz described it in "Watchers" "The slugs had flattened against the vest, drawing no blood whatsoever. But, Jesus, they had hurt. The impact had knocked him against the wall of the house and driven the breath out of him. He felt as if he had lain on a giant anvil while someone repeatedly pounded a blacksmith's hammer into his gut."

Still, he would have felt much worse if he had not been wearing the vest.

[CountAllVotes]

10. it sucks for those that SAVE

like I do.

I'm "lucky" perhaps. I have most of my money tied up in long-term CDs paying anywhere from 5.25-6.25%.

However, this is now over. You would be lucky to find a CD paying 5% for 5-years or longer these days.

This sucks and penalizes those that save money and don't like gambling at the casino aka Wall Street. :puke:

[SoCalDem]

17. Wow.. ours are at 4.875 (and we thought that was good)

where did you find such good rates?

[CountAllVotes]

21. I have accounts at two different credit unions

I really like them much better than banks! :D

[Win]

11. Ben's out of bullets.

F%&*@ Fed. Interventionist crooks who steal from you and me to bail out the thieving banks.

Got gold?

[Up2Late]

13. I bought a one (1) 1/10th oz Gold coin back in about 1996 for about $53.00 and...

...a few extra 1oz "Silver Eagle" coins at about that time too, but I know that's not enough.

I hope it doesn't get so bad that I have to sell those and some of the British Pound coins that I collected back in 1998 on a trip to England, but who knows.:shrug:

[Javaman]

19. A better investment is rain barrels and a large garden. You can't eat gold. nt

[Win]

20. Actually, it is used in some foods, like deserts...

but you can always find someone to take gold for goods or services. It remains to be seen if paper money will be good for anything when the depression sets in.

Your right about the garden. I have a small one ... peppers are expensive lately!

[Redbear]

14. Its a good thing, but a very bad sign.

It seems to me it allows the opportunity for a breather in the financial sector.

But, the biggest cut in over 20 years when rates are already low? That's an indication that things are pretty bad.

[BuyingThyme]

15. Kinda like cutting mortgage rates to sell more product.

[water]

16. It's horrible!

This is exactly what caused the great depression: the government inflating the economy with monopoly money. While I don't think anyone seriously thinks we are going to have a depression that severe, the feds need to back away from monetary policy for good to avoid making the inevitable crash worse.

[KillCapitalism]

18. Bad.

Say hello to hyperinflation!

[Selatius]

22. Simply put: DON'T CUT RATES DURING AN INFLATIONARY PERIOD.

We are in an inflationary period because of high fuel prices. It drives up the cost of everything.

[Up2Late]

24. Oh, but the "Core inflation rate" is still low, right?

Just don't:

1) Eat

2) Heat your Home

3) Buy Fuel for your Car or Truck

...and you'll be fine, right? What? Didn't you get the memo?:sarcasm:

I guess the "Bush World View" just isn't "selling" well anymore, huh?

Does anyone still believe that "Core inflation rate" BS anymore?

[deacon]

31. And, it is not the job of the fed reserve to keep the market from falling to a realistic value,

period.

[Up2Late]

25. kick n/t

:kick:

[MiniMe]

27. Its a bandaid to try to keep things going until * is out of office

[roamer65]

28. It will be the beginning of hyperinflation.

Very bad for everyone.

[windbreeze]

29. very bad...finger in dike scenario....

hyper inflates and will still catch up with us down the road...wb

[deacon]

30. Very stupid. It was an act of desperation. n/t