tomorrow's FOMC meeting will help determine the next President. The Fed has to reduce the Federal Funds Rate by 50 basis points, or at least 25 basis points. The stock market is a key barometer into the nation's health. No guarantee the market will  take off, but hopefully the Fed's action, and more specifically what they say, including AIG, will calm the markets. Not sure how many bullets are left for Bernanke or Paulson, but they need to quickly inject liquidity into the marketplace.  

decided the presidency. Greenspan virtually handed the election to Clinton in 92 due to his heavy handedness of tightening interest rates.

Still Greenspan is given credit that should rightfully belong to Rubin for the smooth sailing we enjoyed through much of the 90s. Clinton to his credit, managed not to not fuck anything up. I hope McCain can do as well. I have no such hopes for Obama.

Tomorrow's FOMC meeting may help determine the next President. Will the Fed reduce rates ?
Bloomberg says the fundamentals of the economy are sound but it was not the best thing for Mac to say to give Obama ammo because you are right Palulson and Bernake ain't got many bullets left.

I do agree that fundamentally America has an economy that is strong," he said. "America’s great strength is its diversity, its hard work, its good financial statements, its broad capital markets,its enormous natural resources" and its work ethic, he said at an afternoon press conference devoted to reassuring New Yorkers that the city's finances and its economy are intact.
http://www.politico.com/blogs/bensmi...g.html?showall

statement from the 1992 election. I agree 100% with your post, but the majority of the electorate is stupid. Just watch a Jay Leno segment when he is on the street asking very basic questions to the so-called middle class.

Every 8 years we have a market correction. Carter to Reagan (inflation & high interest rates), Bush I to Clinton (S&L crisis), Clinton to Bush II (tech implosion), and now this.

Now I just need to grab my balls and invest more in the market tomorrow.

..then you don't understand what is truly going on.

There will be no true liquidity in the market until all of the shit is worked out of the market.

Have you looked at treasury rates lately?  High borrowing rates are not the problem right now.  It's the unwillingness/inability to lend.

which is a huge improvement on your earlier posts.

St Croix has already said the Fed has very few bullets left in their arsenal. You are correct that all the shit has to get worked out of the market. All market bottoms are marked by total capitulation, we are very close to that now.

That said, the Fed has an obligation to try and calm the markets with whatever means they have available. I don't think a quarter point will have any impact, but a 50 basis point decrease will show their resolve and calm the markets for the short term at least.

There is not an inability to lend, there is plenty of money out there that needs to find a home. I do agree that there is and unwillingness to lend. I have noticed myself over that last couple of weeks that we are reaching that point of total capitualtion and we are very close to reaching that bottom.

One thing I do find ironic is the fact that as oil prices have fallen over the last few weeks, more capital has been made available to fund energy projects. Go figure.

I'd like to think we're very close to the bottom, but I think we have a ways to go.  The fact is there is a tremendous amount of shitty debt hidden in just about everyone's balance sheets - some obviously worse than others.  No one will know truly how shitty it is until the housing market/values settle down, which has a ways to go in my opinion.  Is it a $500 billion problem, is it a $2 trillion problem?  Nobody knows and anyone who says they do is a fool.  Until that time real capital will not start flowing again.  Split hairs if you want between inability/unwillingness, the fact is the private debt markets are essentially shut down.  A fed funds rate fine tuning won't do shit, other than give the talking heads something to talk about tomorrow.

but a half point will have an effect.

Say what you want about the private debt markets being shut down, but there is still plenty of capital out there that is need of a home. It can't sit on the sideline forever. I do agree that for all intents and purposes they'be "been" shut down, but I've noticed a slightly different attitude over the last couple of weeks.

The home owner that wants to pull out a couple of hundred grand out of his house is going to have to jump through more hoops than ever, but the manufacturing plant that needs  $50 million to expand is going to have an easier time.

was the beginning of the end. Fannie Mae and Freddie Mac should NOT have been given an influx of money back in July. What the bailout did, was guarantee that the US Government would acquire the mortgage debts of these mis-managed quasi-governmental agencies.

Just one month and half later, they went to receivership. These bailouts are now having the effect of introducing trillions of cheap dollars into the economy. Can you say stagflation? Fannie Mae and Freddie Mac's management should have been hauled to jail instead of being given a golden parachute.

The message that should have been sent to Wall Street; if you lie cheat or steal expect to go to jail not a bailout. Christopher Cox of the Security and Exchange Commission is simply not doing his job and I wonder why.

Frankly I blame both parties for this economic fiasco. Please see attached link which shows whom has received the most political contributions from the 187 million dollars in lobbying money from these institutions. You will see Sen. Baarck Obama at the top of the list.

I'm pissed but i gotta be smart, I'm buying some gold.



-- Modified on 9/15/2008 9:03:28 PM

is not over. Nevertheless, my original point was about the election. If the Fed does nothing, either via a fed rate reduction, facilitating AIG's survival, and God knows what else, the electorate, and as dumb as they are, will vote for the other party.

The debt markets are not essentially shut down. If the Fed reduces the fed rate by 50 basis points, they are injecting money into the banking system thru the purchase of treasury securities from banks, which in turn increases the banks reserves. Banks don't like to keep money that's not working for them, so they cut short-term rates to spur lending. This also has a positive impact on existing debt, i.e. credit cards. Granted, you may need a FICO score of 700+ to get a new loan today, but a decrease in existing debt provides relief. Look at Freddie and Fannie resolution, and the immediate reduction in both 15/30 year rates, which should spur refinancing from some of the ARMs.

Individuals are sitting on a lot of cash. Lower interest rates means lower rates for money market and CD's. As a result, they look for higher returns via the market. Lowering the rate traditionally translates to higher stock prices, which means the S&P, DOW, etc would go up before the election, hence making people feel a bit better about things.

We can debate the value of a stronger or weaker dollar, but a fed rate reduction will weaken the dollar, which for the past 6 months, except for the 1 month dollar spike, helped with exports.

I wouldn't be surprised if Obama is praying with Reverend Wright that the economy worsens

With the combination of cheap dollars into the economy and high energy costs, I see a replay of the 1970s with the return of stagflation and disco.

...by the way St. Croix, I appreciate your intelligent and thoughtful posts.

-- Modified on 9/15/2008 9:21:51 PM

I was in my early 20s and getting laid like nobody's business, and for free. Just wished they had already introduced brazilian waxes back then. You will happy to know that I tossed all my gabardine slacks and polyester shirts, and shaved my porno mustache.

Re oil, yes you are right, but considering the worldwide reduction in demand, emphasis on drill baby drill, and even the fact that Ike didn't have an impact, maybe we can slide by without a spike in oil.

-- Modified on 9/15/2008 11:08:50 PM

drill is an admirable slogan but let us be realistic it is only a slogan. We still do not have permission to drill in the Arctic National Wildlife Refuge (ANWR) or offshore off the beaches of Florida. When we do, you have to conduct exploratory wells, then build the drilling platforms and then the pipelines and other infrastructure to deliver the oil. Time frame about four years optimistically.

The best bet right now is to pump the Iraqi oilfields. Coal plants that the Energy department approved have been met with massive opposition from environmental groups especially Nevada. Sen. Harry Reid is blocking the construction of coal firing plants in Ely Nevada that would burn Wyoming coal. Even if that gets approved you still have to build the rail line etc. Time frame about three years.

This is where Gov. Palin can be useful, she has the experience and the know how skills of negoitation to build these large infrastructure projects.

I was in Europe when ths disco era started and I have to confess to actually liking it. Maybe it was because I got laid a lot. lol

I agree that cutting rates will have the effect of raising oil prices, but (I am a "little" biased here" I think the trade off is worth it.

Cutting rates will have two positive effects, the first is that the resulting weaker dollar will help the US with exports, the second is that it will virtually force investment, all this cash that is sitting on the sidelines will have even more impetus to find a home, which will help jump start this economy.

There are a couple of differences between now and the 70's. The price of oil is not having AS dramatic effect as it did in the late seventies, and interest rates and inflation are not spiraling out of control. Do you remember the 20% rates of thirty years ago? Those rates killed economic growth.

One caveat to my earlier statement, if Obama is elected and couples his huge tax increases with his massive new entitlement program, we could see a repeat of the seventies. Our economy is resiliant, but beieng attacked on both fronts is more than our weakened economy could stand.

I rather have Carter back LOL!

Sorry to say, but as a rowdy teenager, I was involved in the following.

http://www.discodemolition.com/

a decrease in the supply of oil. This will have the effect of increasing the price of oil. One difference between today and the 1970's is that the supply of oil has not been disrupted.

In high school I tried learning to do the hustle but I wasn't to good at it. My banner years were the Reagan years. We had fun. After the Rodney King riots of 1991 music became angrier.

than any other Junior Senator does.

I never wanted to admit liking disco, but considering the fact that I got laid a lot more than my hard rock stoner friends did because of it, I learned to not only enjoy it, but even admit to it to my friends.

There's a name missing who should be at the top of your list: Rick Davis, John McCain's campaign manager. He was paid $2 million as a lobbyist for Freddie Mac and Fannie Mae while heading up a bogus organization called the Homeownership Alliance. The only alliance was between the two companies and its lobbyists like Davis who worked to minimize and eliminate any regulation.