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I just would rather get the correction over with now instead of waiting for things to get worse.
Agreed! Let's just let whatever has to happen happen and get it over with, instead of bleeding a little bit at a time for the foreseeable future. If we had had the hard landing after the stock market crash in 2000-- instead of converting one asset bubble to another-- perhaps things would never have gotten to this point. Lowering the rates might build a little confidence, but it isn't going to be a Hail Mary.
Location: Sitting on a bar stool. Guinness in hand.
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My View
Quote:
Originally Posted by NewToCA
OK, what would you have done, what consequences would you expect, and why do you feel it would be a more appropriate approach?
On what I would have done.
I would have left rates alone and show the market I'm going to make a stand against the out of control spending with credit and price increases we have had since 1998 or so. This great run of a bull economy was propped up by two bubbles First the Tech then the housing bubble. To be honest this whole problem of loose liquidity should have ended with the tech bubble. But unfortunately it didn't and now we had an even bigger bubble than the tech and I feel the fall for a lot of people are going to be severe when it all shakes out. Job loses, for closures, etc., etc. If the FED would have held now I feel that yes the market would freeze up for a little bit but that because the markets would have to work on figuring out what worth what. But with in couple of months maybe even a year most of the market would be up and working full steam ahead. One last thing housing is in most areas radioactive for at least 2 years I now honestly believe prices are going to drop to 1998 prices. Which is good for younger buyer,family's,and downsizing retirees and that's really who counts in my mind, If those people get to buy at a decent price they will be more inclined to be part of the communities in the area they buy. They have a stake in the community at that point. If they are only renter I feel they will not be inclined to care what happens beyond they're living room. But that's just my thought.
consequences I'm expecting from the FED cutting rates.
I expect $90 to $95 maybe even $100 a barrel of oil. I see in my local area NJ/NJ a gallon of gas going for 3.50 to 4.00 a gallon by next summer.
I see the dollar falling further lows for the next year. Can't give you an exact number but I guess value of dollar will fall 5% maybe more by next year.
see housing collapse anyways even with the cut. It will make a recovery by let say about 2009-2010. (varying were you at in the county.)
If the FED keep the rate low until let's say May - June I expect the inflation rate to rise to 3% - 3.5%.
And the Canadian Dollar will be even with the U.S. Dollar by March . That just sucks!
And the Why on keeping interest rates:
Very simple. Take the pain now. Keep the dollar strong and keep inflation in control. And let the market settle it own issues. The markets will correct and reprice at proper levels and we all can move past this with in a year and we will thrive again.
Consequences for holding the rate are:
That the credit market's will freeze up for a couple of weeks.
Volatility goes through the roof for a couple of months.
Wallstreet sentiment fall trough the floor for a year.
Lenders get tough with their lending standards (which is a good thing.)
we will have a consumer lead recession for a year maybe a year 1/2.
And Dow goes down to 11000 or 11500.
But unfortunately we have not done so. And we are running the risk of a major recession, stagflation, and possible Hyperinflation.
Well that my opinion anyways and I stick too it. Granted I'm a big enough man to admit that I can be wrong. So maybe I'll be eating my words next year. But to be honest. I doubt it.
Last edited by baystater; 09-19-2007 at 08:35 PM..
I guess the main things we disagree on are inflation, stagflation and the harm of a dropping dollar. To me, the weakness in the employment sector, especially in the area of wage growth, precludes much of the inflation fuel. Stagflation is a derivative of inflation, it is high unemployment with inflation, and I don't see any risk of that whatsoever. The dropping dollar encourages foreign investment in the USA, making production here less expensive on a world wide cost scale.
But like you said these are opinions, and we can see how things pan out. Perhaps your view will be correct, and if so then you had the better vision.
I agree that intervention by the Fed only postpones (and eventually makes worse) the correction that is needed to restore sanity and reason to the economy. You cannot solve the problem of too much debt by borrowing more money, regardless of the interest rate. The crises we are facing now is a result of the Fed's intervention in 1991. Had the Fed alowed the recession to happen as it was supposed to then, the public and banks would not have been borrowing and spending like drunken saliors for the next 15 years causing the situation we have now. Capitol markets depend on cycles to keep them balanced, when you interfere with the cycles you create a false enviorment in which people make bad conclusions (ie: its OK to buy a house I can;t afford because I will be able to sell it for a profit later, or it.s a good idea to take the equity out of my house and use it to buy cars and boats and other things which will be worthless long before I ever repay the money I borrowed to buy them). Like gravity,the laws of economics do not care if you believe in them or not, they are going to do what they do. You may be able to postpone an economic downturn for a while, but it only adds interest to the account and presents you with a much larger bill down the road. There has only been one other time in history when the debt level of the American public was as high as it is now, 1929.
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Wait and see
Quote:
Originally Posted by NewToCA
I guess the main things we disagree on are inflation, stagflation and the harm of a dropping dollar. To me, the weakness in the employment sector, especially in the area of wage growth, precludes much of the inflation fuel. Stagflation is a derivative of inflation, it is high unemployment with inflation, and I don't see any risk of that whatsoever. The dropping dollar encourages foreign investment in the USA, making production here less expensive on a world wide cost scale.
But like you said these are opinions, and we can see how things pan out. Perhaps your view will be correct, and if so then you had the better vision.
Fair enough sir. I do appreciate your point of view and the debate you bring to the table and maybe you'll be right in the end. Who really knows. We'll will just have to wait and see.
Do you find Moral Hazard with the Fed's decision today?
I feel betrayed as a consumer and investor that was responsible during the irrational exuberance of 2003 -2005. Today's decision doesn't incline me to be all that responsible with monetary matters.
I think the Fed's decision was the right one for this snapshot in time, however... and this is a big however... the lending institutions and applicable loan-brokers need to be held accountable (in some way, shape, or form) for the disaster in the mortgage and real estate industry.
I too have been a responsible investor/borrower, and I feel the economic woes may indeed be due to irresponsible loan approvers (and borrowers who don't use reason when applying for a loan). The government should make it a practice to not sanction or bail out in any way real estate loans which do not involve down payment (pick a random percentage like the traditional 20% - something which ensures that borrowers and banks are relatively protected and risk is minimized). Once you bail them out, you start a trend which is ridiculous.
Where we are economically right now is a much larger topic and goes beyond real estate. Our country has serious issues in the global economy right now. Stemming from trade imbalances and ridiculous national debt caused by lousy budgeting and a failed tax system, it's a top-down issue, not one just caused by lousy investors at the bottom. Our government in combination with global corporations has unfortunately made a huge mess of things through short-sighted actions and policies.
Obviously the corporations don't care about the US economy (they are led by execs who want short-term profit), so it is up to the government to attempt successful corporate regulation and guidance towards more US-centric trade and business situations. I really hate to say that, because there are numerous examples where the US government although meaning well fails to enact regulatory activities well, but there's no alternative - we're at a point of no return folks.
We have no choice but to try to help build the US economy by attempting to stem outsourcing (both at the manufacturing and at the "white collar/skilled labor" levels), limiting H1B applications rather than expanding them, fixing specific illegal immigration issues which directly result in public services being used by non-taxpayers, increase taxes on corporations who not only are based in the US but who operate and sell to this market from outside, increase taxes on those with very high incomes, and lastly the public education, social security, and healthcare systems should be overhauled. The last point is obviously generic and covers "a ton" of things... but something needs to be done. If nothing is done, we'll see our economy if not collapse outright, just get majorly surpassed by other countries of the world at the expense of our quality of life.
If nothing is done, we'll see our economy if not collapse outright, just get majorly surpassed by other countries of the world at the expense of our quality of life.
Many believe the next Superpower is already rising... and it is in the West. I'm sure everybody knows who it is. And if that happens-- if the U.S. is surpassed as the world's leading economy-- they didn't take it from us; we gave it away.
And you're right-- our downfall will have come from both the top-down and the bottom-up. Our quality of life will suffer immensely.
Obviously the corporations don't care about the US economy (they are led by execs who want short-term profit), so it is up to the government to attempt successful corporate regulation and guidance towards more US-centric trade and business situations. I really hate to say that, because there are numerous examples where the US government although meaning well fails to enact regulatory activities well, but there's no alternative - we're at a point of no return folks.
The corporations are now Multi-national and have no loyalty to the U.S. whatsoever, they are however in complete and total control of the U.S. goverment. They view the country much as a company which can be broken up and sold off for profit. Our manufacturing base, (the only real producer of wealth) has been crated up and shipped overseas. We have been force fed "Trade agreements" which have stripped us of our ability to control our own food supply or regulate our borders. They use the military to protect their corperate interest over seas and lay the bill on the citizens. If you are waiting for our goverment to help us, don't hold your breath.
The Fed does not have a crystal ball... they saw no big acceleration in inflation, a slowing of the domestic economy, and a need to loosen credit markets. They did the right thing given the available data.
What is this thing about morals? Moral decisions have to do with goodness or correctness of character and behavior. There is no moral decision here... it is just an estimation of what is best for the US economy.
The world economy is doing better than it has ever done and conditions worldwide are different than ever in history... there are no good guideposts for the Fed or individuals... All will do the best they can and probably be right only half the time.
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My View
and maybe you'll be right in the end. Who really knows. We'll will just have to wait and see.
