Busted: Bankers and The Global Economy

March 18, 2008

Fear and Lack of Confidence

With Wall Street hit by a crisis of confidence, many cast their hope on the nation’s central bank. The Federal Reserve’s typical weapon of interest rates cuts will do only so much so fast and often has an inflationary side effect. Most economists expect a big slash of three-quarters of a percentage point today. The same economists in favor of such a move concede an interest rate reduction will do little to calm investor fears. Concerns that another institution will follow the collapse of Bear Stearns is one reason that the Fed is expected to deliver another big rate cut.

The Fed’s emergency move on Sunday is likely feeding more fears than hopes. Some even believe that shoring up the economy by saving Wall Street firms is not the thing to do. So far, the extent of the bailout for Wall Street has not gone to the country’s bottom line: the American taxpayer and the national deficit. Part of the bailout is temporarily financed and is making the Fed a little interest money for the short-term.

In the meantime, the interest rate cuts are fueling further inflation and creating devaluation pressures, which will in turn fuel higher prices, especially for food and fuel. Economic critics say that a full percentage point cut would send the dollar into a potential collapse. “We’re in a free fall now, wait till you see what a collapse looks like,” says Rich Yamarone, director of economic research at Argus Research.

update:

In news this afternoon, the Federal Open Market Committee decided today to lower its target for the federal funds rate 75 basis points to 2-1/4 percent. This is a total reduction of a full point this week.

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1 Comment

  1. Perhaps they’re approaching this problem backwards. Maybe, if the price of GAS and food wasn’t so high people could pay their mortgages.

    Comment by Shaun Kennedy — May 11, 2008 @ 7:04 pm


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