Central Banks have decided that a global crisis warrants a global response:
Oct. 8 (Bloomberg) — The Federal Reserve, European Central Bank and four other central banks lowered interest rates in an emergency coordinated bid to ease the economic effects of the financial crisis.
The Fed, ECB, Bank of England, Bank of Canada and Sweden’s Riksbank each cut their benchmark rates by half a percentage point. The Bank of Japan, which didn’t participate in the move, said it supported the action. Switzerland also took part. Separately, China’s central bank lowered its key one-year lending rate by 0.27 percentage point.
Along with a global move, they issued a global statement:
“The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability,” according to a joint statement by the central banks. “Some easing of global monetary conditions is therefore warranted.”
I concur with Stephen King, managing director of economics at HSBC: [Interesting discussion of pros and cons]
Japan’s experience suggests that, sometimes, interest rate cuts simply don’t work. It is not difficult to see why. When a bubble bursts, asset prices, by definition, collapse. Even if interest rates do fall to 0 per cent, there is not much point borrowing if you and everybody else think asset prices are more likely to fall than rise. Why buy a house, for example, if you think house prices are persistently falling?
He concludes:
In current crunchy circumstances, rate cuts will, at most, only reduce the pain. They certainly won’t give any pleasure.
It might buy us a big rally today, but long term, "the hair of the dog that bit us" isn’t going to solve anything.
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“[T]he hair of the dog that bit us” isn’t going to solve anything.
The hair of the dog may get rid of the morning shakes, but it inevitably leads to the DTs. In this case, “DTs” refers to Destruction of Treasuries. When the risk of inflation becomes greater than a bond’s yield, the bond market’s collapse will prove to be even more devastating than this US equities market plunge.
Assume crash positions. Market bump already went away. DOW futures negative 188.
And to quote Krugman today,
“”The only thing we have to fear is fear itself. Fear and negative equity … The two things we have to fear are fear itself and negative equity, and the depleted capital of financial institutions … Amongst the things we have to fear are fear itself, negative equity, and the depleted capital of financial institutions….”"
And what do you call it when the sum of the whole is less than the sum of it’s funny money trick parts?
I think I see a delayed chemical reaction (explosion) on the horizon.
Wait, I’m confused.. if all we needed was a rate cut, what was the $750 billion for?
Oh wait, this must be indicating the $750B wasn’t enough.. but it’s ok, the banking system is sound.[/sarcasm]
I truly believe that anyone reading this blog could manage things better than Paulson and Bernanke, and that frightens me.
Twist for president?
Linenoise -
Yes anyone reading this blog could do a better job than Old Harry, CashCarry & Co.
On the other hand, Igor knows that anyone writing this blog …
Ok I’ll do a write in for Twist. It beats wasting my vote on one of the two panderers out telling everyone “If I’m elected; Government will save you.”
Igor says: pitiful
We have reached the end of the utility of Nouriel Roubini’s analysis. He has been the one telling us that nothing can be valued, yet he wants to “triage” banks and recapitalize them. Based on what? So he is contradicting himself: he says nothing can be valued, but his suggestions are based on the idea that things can be valued.
It’s idiotic.
No, the only thing to do is what I have been suggesting for over two years (to him and others) and which is part of the movement away from the West Coast Hotel v. Parrish (1937) “scrutiny” regime toward what I describe as the “maintenance” regime: policy maintains important facts (important using the test laid out by the Court in West Virginia v. Barnette). All this I describe in my book, The Eminent Domain Revolt (New York: Algora, 2006).
We have to have an immediate, individually enforceable, permanent, complete and absolute ban on housing evictions.
Never mind this “prime the pump” bridge to nowhere nonsense. FDR, JFK and LBJ are dead. No more of this corrupt nonsense. The political system doesn’t want to ban housing evictions because it knows that doing so will take away the power of the political system over housing (in “scrutiny” regime terms, it will elevate housing from “minimum” scrutiny to “strict” scrutiny–any lawyer or judge will tell you that this means a Constitutional revolution in the United States: well bring it on!). However, the political system’s power over housing has already disappeared. People will–of course!!–reject the mass evictions which are going to happen first thing in this Depression.
So enough of dropping money from helicopters. Instead, drop the political system’s opposition to a ban on housing evictions.
John Ryskamp
Three things occur to me this morning:
(1) We will be telling our grandchildren about this week at the very least, and possibly upcoming weeks as well. We should savour this time for better or worse.
(2) I am quite disappointed that the Nostradamus lunatics have been caught asleep at the switch. By this time in any other crisis in history, they would have long since found some obscure bible passage in the Book of Revelations that seems to vaguely metaphorically point to this as a sign of end times. They’re getting sloppy.
(3) I am disappointed that there is not yet any catchy name for this catastrophe. The “catchy-name-making-people” are asleep at the switch too. How are we supposed to remember this if it isn’t called something memorable like “Black Monday”? I nominate any name for this crisis that carries the word “Bush” in it, seeing as how during the last 8 years in office Bush has always said (in response to criticism) that the historians will judge his actions.
I say we take it a step further, and commemorate Bush’s stain on the world with his own word in the English language.
You know, in the future we can say things like, “You’re doing *what* with your money? Oh man, you’re going to totally GEORGE-BUSH your life savings”.
-OR-
“Hey what out! You’re about to step in that GEORGE-BUSH that a dog just left there”
jryskmpr -
And how would banning housing evictions, you know, help? If someone can’t be evicted, then why should
A) Anyone with a mortgage bother paying it?
B) Any bank offer a loan to someone, knowing they won’t pay it back?
Your proposal causes all home values to drop to $0.00 overnight, since any sane person would immediately stop paying their mortgage. Oh, what, you’re going to ruin my credit? Who needs credit when I have a huge savings account that I stole from the bank by not paying my mortgage? I thought I read somewhere that Fannie Mae alone had something like $50 trillion in mortgages. Most of those would immediately go unpaid, which would instantly collapse the economy.
Even if that doesn’t happen, it does nothing to address the economic issues at hand – namely, loans were made that won’t get paid back.
Socialist stuff sounds good on the surface, but if you just use a little common sense and stop ignoring human nature (laziness and greed), it starts to smell suspiciously like a barnyard. If you take something without paying for it, it is theft. Banning evictions is theft. Apartments are housing too, no one has a right to a McMansion.
MikeC -
Last I saw the Nostradamus folk they were harping on RFID chips as the Mark of the Devil, and backtracking up to the invention of the Barcode being the first sign of the end of the world. They’re a little busy rationalizing things.
And a good idea about Bush.. we shouldn’t leave Paulson out, though. You no longer get mugged, someone went Paulson on your wallet.
Linenoise -
Actually, after some reconsideration the Nostradamus loonies may not be getting sloppy after all. They have simply been too busy working, what with all the plum job assignments they’ve received over the last 8 years in the Bush administration.
And those left over are too busy trying to help Pallin campaign all over the U.S. They may even have a dedicated person coaching Pallin how to “wink” properly in different situations – gripping stuff.
jryskmpr- the only way I agree with what you want, and that it is fair, is if everything else goes free too. Food, cars, gas, etc. I’m holding my breath.
I am surprised something hasn’t been posted about the incident in Iceland. Their economy is in ICU. Seems they ate something they shouldn’t have.
Igor says: burn
Hutch (#11) -
Halifax is home to the world’s largest fishing industry conglomerate and Iceland is the world center for banking in the sector. You’d better believe we’re noticing
John Ryskamp: We have to have an immediate, individually enforceable, permanent, complete and absolute ban on housing evictions.
It’s here:
http://apnews.myway.com/article/20081008/D93MFL900.html
Mike C, politics as usual for you. Bush this Bush that. You guys are getting real old. He has absolutely blown it. But not by himself. Dodd, Frank, Pilloseee, Reid, Clinton. Hopefully you don’t really think Obama brings anything to the table. Old boring politics is all you can come up with.
freemonster:
Er, yes, eight years with Bush as “leader of the free world” gets us into this utter catastrophe of historical proportions, and you are trying to tell me I’m *NOT supposed* to point out that he is the point-man on this whole fiasco???
Do you realize that the man has led the world into a sure recession, and possibly a depression? Oh, but I cannot mention that because it will offend somebody’s finer delicacies? Whatever happened to putting the blame where it belongs? Don’t you worry freemonster, if Bush is truly a Texas boy not only can he take the criticism but he will own up to it.
“But, but, but…. CLINTON!!!” Yes, keep it up. I wonder if you can see how that is very amusing, especially considering Clinton the country with a surplus 8 years ago.
A quick note borrowing idea off a comment elsewhere:
Bush is a real-life ANTI-midas.
Midas was a mythical character who turned everything he touched to gold.
Bush is a real-life person who turns everything he touches to… well, you know. (Really, look into his vast business failures before he became president, too).
(Just trying to vent my stress at this point… and direct it where it belongs.)
Mike C, no offense taken. If you want to wrap yourself in simplistic thought go for it. My only point is your old tired politics is just that. Old, tired and boring. Bush Bush Bush
MikeC, that was funny
“Bush is a real-life ANTI-midas”. It is amazing how many people still defend Bush, when many of us knew he was and still incompetent
You don’t have to defend Bush to point out that an unending, unyeilding, unthoughtful everything-is-bush’s-fault-alone stance isn’t terribly useful, and is indicitive of an intellectually lazy mind.
Though, I suppose that any thread where someone actually enganged jryskmp in a discussion about his moronic stance was bound to end badly.
Today it was a step in the right direction. I have posted the best solution and ONLY solution:
Lower Discount rate to 0.25 and FF to .75
Lower RR by 5%.
Do not buy worthless paper with tax payer funds, do what Warren B and England have done, use the first 350B to buy Preferred shares in Banks that want the funds, use the remainder 350B to back Com Paper.
Time will build the balance sheet with the 400 basis point spreads being offered to banks.
>>an unending, unyeilding, unthoughtful
>> everything-is-bush’s-fault-alone stance
>> isn’t terribly useful, and is indicitive of
>> an intellectually lazy mind
At a time when we’re heaing to the polls, any opposition to Bush’s deserved criticism stinks of somebody who does not want the GOP (under Bush) to take responsibility for it’s catastrophic choices in the past 8 years. Now THAT is absolutely a guarantee of an intellectually lazy mind.
Mike C, blah blah blah. Get a life
MikeC,
let me rephrase your post more concisely:
“I know you are but what am I?”
Please play nice, everyone, there’s a world-wide catastrophe in progress
(wish I could say the same to the good folks at Citi & Wells …)