The Fed: Tragically Following Japan's Mistakes

If the Fed reduces benchmark US interest rates tomorrow and perhaps cuts the rate to zero, it will lose any remaining leverage over markets, possibly begin a run on the US dollar, and increase the likelihood of America following Japan's policy fiascos that led to a lost decade.

Japan's benchmark was stuck at zero for many years and only recently has been raised to 0.3%. This certainly has not helped Japan's anemic economic growth rate, consumer confidence or its stock market! There are many better policy options for turning around the credit crunch - namely cutting taxes on hard-pressed consumers and tying bailouts of financial institutions to putting capital back to work to grow the US economy.

The consensus forecast suggests US rates to be cut from 1% to 0.5% but there is a possibility that the Fed will go lower. Analysts expect the Fed to step up purchases of mortgage-related securities in an effort to reduce home loan rates and it could also start buying long-term Treasury bonds, reducing the benchmark rate for the corporate bond market.

Comments

[Socialism c...:]

Rates are already well below target...Fed setting rates is already meaningless. Who cares? Dollar is toast given the TARP and the $2 Trillion that the Fed won't reveal the recipient for!!!

seekingalpha.com/artic...

Forget rate cuts...we have worse fraud than Blago and worse Ponzi schemes than Madoff's to worry about!!

2008 Dec 15 04:25 PM

[Oceanvoyager:]

FYI, When the Fed increases or reduces benchmark US interest rates, loans that have interest rates that increase or decrease with the direction of interest rate movement by the Fed, well, all those loans and all who have them will be affected dramatically.

Speaking from personal experience, the monthly cost of money to me has been reduced by some $400.00 monthly since the fed began to cut (reduce) benchmark US interest rates.

In my opinion, the question of the day is: Why has the US Taxpayer no say as to how Secretary Henry M. Paulson Jr. gives away money does not belong to him without terms and conditions that cause changes to how business is conducted.

2008 Dec 15 06:12 PM