I just realized that the Fed CAN'T raise interest rates

[French G.]

I agree that I wish the .gov would just go hands off and let the market shake out as it may. The global injections of cash reserves the past week are very worrisome. Now we even have a few financial asshats on TV speculating about and fomenting for the FOMC to cut interest rates. There is some sentiment among the eternal optimists that today we "found bottom", the sub-prime mess is contained, the government will ride to the rescue, and now is the time to buy. Hmmm. While I still have money in stocks, I retain some on the sidelines until we have a little more spectacular of a crash.

   Besides the sub-prime mess, the market is nervous now, they will be more nervous the more people like John Edwards or Hillary say "tax, capital gains, or health care", economic warfare will heat up internationally because with the coming Olympics it is quite the sport to stick it to the Chinese. I enjoy the show but pretty soon Joe sixpack will not want to buy Chinese and won't be able to afford to buy American. Factor in the traditionally crappy stock months of August-October and hopefully a hurricane season that shows us a little something and I think now is most certainly not the bottom.

  So, I agree, no way the Fed can tighten down the money valve anytime soon without writing a whole new meaning to market bottom.  Between Wal-Mart saying they see weakness in the economy and pressure on the consumer and the Treasury Sec. today saying the economy is in good shape I'll take Wal-Mart. In many ways the economy is in great shape. In many ways the Titanic was a great ship too except for those pesky bulkheads that did not go all the way to the overhead and some incredible pile of hubris at its con.

[m1911owner]

There is some sentiment among the eternal optimists that today we "found bottom",

I know a researcher at the Hoover Institute.  At a Christmas party in 2, he told me how he thought Greenspan really had "the touch", and that he was going to "soft-land this thing."   

[m1911owner]

I've been participating in hijacking my own thread onto the subject of the culpability or non-culpability of those who have failing mortgages, which isn't really what I was hoping that this thread would develop into.

Rather, I think that it is interesting that the Fed probably can't raise interest rates.  I think this has major ramifications for where the economy is going to be going over the next year or two, though I don't yet have enough understanding of the dynamics of the economy to be able to understand where this is going to be taking us.

I think it is likely that we are going to be seeing further problems in the real estate market.  Inflation is also a possibility, although dropping real estate values would seen to have the effect of removing "net worth" from the economy, which would seem to operate in the opposite direction from inflation.

[SomeKid]

Rabbi,

Around here it tends to be New Yorkers and other Yankee types what come down here. Good point though, we don't need to advertise cause I don't want either one.

[The Rabbi]

Rabbi,

Around here it tends to be New Yorkers and other Yankee types what come down here. Good point though, we don't need to advertise cause I don't want either one.

I meet both kinds.
I grew up in NYC btw.

[SomeKid]

Yankee go home!   

Actually, you can stay. I somehow don't see you as the Harold Ford loving liberal worm type. Some of the ones I have met however have been. Need less to say, I really wish they would go away.

[The Rabbi]

Well, my dad was from Savannah GA so I got it in the blood.

[AJ Dual]

Sorry, I'm coming back to this late...

As to my comment about over-extended borrowers. I do feel for them. The example of the warehouse manager with a $500,000+ mortgage was probably on a tiny bungalow, depending on where he was in CA, that aside from the dollar value, probably was commensurate, if not below his station in life.  That is not lost on me.

As a right-libertarian, I don't think there's any solution the .gov ought to have for those people though, it'll only make things worse.

[French G.]

I know a researcher at the Hoover Institute.  At a Christmas party in 2, he told me how he thought Greenspan really had "the touch", and that he was going to "soft-land this thing."   

ROFL. Maybe Helicopter Ben is better, but this may look more like an autorotation to a smoking heap of wreckage by the time it's done.

[roo_ster]

I think the Wal-Mart softness is overplayed.

It very well could be a problem with Wal-mart, not the consumer.  As a regular customer,  have seen WM drift from its core competency into Target territory by dropping the cheap lines and trying to go a bit upscale.

They are stocking pricier stuff without the whole-hog makeover that Target already did into a provider of "less cheap cool-looking stuff." 

Thing is, Target does that schtick better.  And while WM is playing at the cool end of the pool, it loses customers on the not-so-cool end who want thier super-cheap (but functional) stuff.

[The Rabbi]

Well, they did it.  Fed cut discount rate 1/2 percent this morning.  Bailing out the stupid.  It never works.  They will be very sorry they did this.

[Len Budney]

Well, they did it.  Fed cut discount rate 1/2 percent this morning.  Bailing out the stupid.  It never works.  They will be very sorry they did this.

I'm waiting for negative rates. Then I plan to borrow a million dollars at -5%, use the kickback to pay off my mortgage, and then give 'em back the principle.

--Len.

[Manedwolf]

And here we see the first, expected effect of cutting the discount rate.

Aug. 17 (Bloomberg) -- The dollar fell versus the euro and pound after the Federal Reserve reduced its discount lending rate to prevent credit market losses from slowing the economy.

The dollar weakened against 15 of 16 major currencies as a reduction in borrowing costs dims the allure of U.S. assets. The decline today trimmed the dollar's weekly advance as investors had sought safety in the currency after a global rout of credit markets. U.S. and European stocks rallied.

A reduction in that rate makes the dollar less attractive. There's no such thing as an easy fix. Everything has a cost.

[K Frame]

Not really so much bailing out the stupid as it is trying to stabilize the markets and ensure that credit of all kinds doesn't tighten up too much.

[jnojr]

Not really so much bailing out the stupid as it is trying to stabilize the markets and ensure that credit of all kinds doesn't tighten up too much.

Exactly.

However, this illustrates a huge problem with our economy.  The recent downturn has been caused by tighter credit.  Credit is now "the lifeblood of our economy".  Businesses used to use cash for operations, acquisitions, etc.  No more!  Countrywide tapped $11.5 billion in credit for day to day operations!  When credit gets tight, the economy suffers... and nobody is seeing this as a huge sign of impending trouble?  Our economy is utterly dependant upon an ever-increasing supply of cheap money?

[K Frame]

"The recent downturn has been caused by tighter credit."

Well, not entirely.... It's certainly a contributing factor, though.

The problems in the subprime mortgage market have scared a lot of investors out of stocks and back into more secure investment vehicles. Multiple subprime lender failures certainly haven't helped. Many of the remaining subprime lenders slapped the brakes on lending, which roils the hell out of the housing market in general. As the housing market gets rocky, companies such as appliance manufacturers are affected, which causes people to pull money out of those companies, and so forth and so on.