Wednesday, October 31, 2007

Fed's Rate Cut Could Be Last For a While - WSJ.com

Fed's Rate Cut Could Be Last For a While - WSJ.com The Fed is walking a tight rope between liquidity and inflation. The two scenarios play out as such: 1.) Rate cuts tends to place more money into the economy which naturally raises the cost of goods. This is a basic supply and demand equation. The more of something in the market, the cheaper is becomes. Think Beanie Babies a few years back at Christmas. 2.) Meanwhile, without sufficient liquidity to grease the credit markets right now in the face of the sub-prime meltdown, we face deadlock, devaluation, and possible bedlam. Think of it as people not taking your $20 bill at Krogers because they are worried it is so devalued that it is worth considerably less than $20. That is what is happening in the sub-prime credit market right now. However, with oil hovering just under $100 a barrell, it seems that there must be more of a risk of a liquidity crises for the Fed to keep cutting rates. And that is what concerns me right now about the economy. Now back to your regularly scheduled programming!

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AUTHOR: Todd Nelson TITLE: Fed's Rate Cut Could Be Last For a While - WSJ.com DATE: 10/31/2007 10:10:00 PM ----- BODY:
Fed's Rate Cut Could Be Last For a While - WSJ.com The Fed is walking a tight rope between liquidity and inflation. The two scenarios play out as such: 1.) Rate cuts tends to place more money into the economy which naturally raises the cost of goods. This is a basic supply and demand equation. The more of something in the market, the cheaper is becomes. Think Beanie Babies a few years back at Christmas. 2.) Meanwhile, without sufficient liquidity to grease the credit markets right now in the face of the sub-prime meltdown, we face deadlock, devaluation, and possible bedlam. Think of it as people not taking your $20 bill at Krogers because they are worried it is so devalued that it is worth considerably less than $20. That is what is happening in the sub-prime credit market right now. However, with oil hovering just under $100 a barrell, it seems that there must be more of a risk of a liquidity crises for the Fed to keep cutting rates. And that is what concerns me right now about the economy. Now back to your regularly scheduled programming!
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