As The Fed Is Eyeing Yet Another Rate Cut………

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Written by Nick Deonas

Wednesday, 29 October 2008 07:44

Alan Geenspan, Chairman of the Fed for more than eighteen years called our present state of the economy a “once in a century credit tsunami,” and admitted he made mistakes that help lead us to this faltering economy. The economy is worsening with each passing day, paychecks and jobs losses are mounting and businesses are closing. This is not a pretty picture and it appears there is no quick fix to the problem.
The Fed is now saying that a “recession” is seen as inevitable, I can’t help but wonder what we’ve been going through the past few months: a preview?

A friend once told me that a recession is when your neighbors home is in foreclosure, and a depression is when your home is in foreclosure, I guess it’s who you’re talking to at the moment.

Millions of ordinary Americans have watched their retirements and other nest eggs shrink and the value of their homes drop, making them feel in worse financial shape. Businesses have cut back on hiring and other investments as customers hunker down and credit problems make it harder, if not impossible to get financing.
This financial crisis is like one big living organism that is feeding upon itself. Ben Bernake, Chairman of the Fed and his colleagues haven’t been able to break this vicious cycle, despite hefty rate reductions and other moves aimed at getting credit flowing again. The Chairman says he will use all tools available to him to battle this crisis. Seems to me like another War is starting. The War on Poverty in America. Let's see that adds another war to our arsenal of War on Terrorism, War on Drugs, War on Ignorance (No child behind). We're fighting a lot of wars....costly wars that are bringing ordinary Americans to their knees.

The Fed is in a two day meeting that will conclude on today, and it is widely expected to lower the central bank’s key interest rate at the conclusion of that meeting. This is the Fed’s last meeting before the November elections. Just how much they will lower the rate is uncertain, or if they will lower it al all, I predict they will and I think we may see a half point drop.

So what would this rate drop do for the average Joe on the street? Folks with home equity lines tied to the prime and certain credit cards and other floating rate loans would drop by a corresponding amount. The Fed is hoping that this will spur people and businesses to start spending again. Consumer spending accounts for the single biggest chunk of overall economic activity, confidence must be restored in that sector before they will start buying anything.

Bernanke has repeatedly warned that these economic woes could last for some time – even if the bailout package does succeed in getting financial and credit markets back on track. The unemployment rate, now at 6.1 percent, is expected to hit 7.5 percent or higher by next year. To date we have seen a staggering 760,000 jobs disappear.