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Reply #9: here's that Chopper Ben article: Will the cure be worse than the disease? [View All]

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UpInArms Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Jan-21-08 06:51 PM
Response to Reply #4
9. here's that Chopper Ben article: Will the cure be worse than the disease?

(Fortune Magazine) -- The wobbly economy is overtaking Iraq as the issue weighing most heavily on the minds of America's voters. And Washington has noticed. The White House and Congress are almost certain to enact some kind of stimulus package. But like all such temporary, feel-good measures, it will generate a quick blip in growth that will quickly evaporate. In reality only one player has the power to do anything swift and decisive: the Federal Reserve. And its chairman, Ben Bernanke, has already made his intentions abundantly clear. Unfortunately, the cure he's prescribing may be worse than the disease.

Just how low will the economy go? There are conflicting signals. It's clear that the economy is losing steam. The plummeting value of America's houses is chilling consumer spending, layoffs are mounting, and banks and other creditors burned by the subprime crisis are far more reluctant to lend to everyone from small-business owners to private equity firms. But GDP increased by 4.9% in the third quarter, and economists estimate that GDP was still growing in the fourth quarter. Exports are strong, thanks to the weak dollar. The Fed did a brilliant job last summer by flooding the banks with money to prevent a full-scale credit crunch. Credit is far more expensive today, but it's also becoming more plentiful, as demonstrated by the falling rates on everything from LIBOR - the rate at which international banks lend to each other - to junk bonds. So while a recession is a real possibility, it's not inevitable - even the Fed is not forecasting one this year. And if we do get one, it may be brief and shallow, like the one we had in 2001 - with economic growth falling by perhaps half a percentage point for a couple of quarters, and unemployment rising from its current 5% to 5.5% or 6%.

By cutting rates early and often, Bernanke is acting as though a recession - even a mild one - would be a calamity that must be avoided at all costs. He has already reduced the Fed funds rate (which banks pay when they borrow from each other) by one point, to 4.25%, and promises to "take substantive additional action as needed to support growth," a pledge that Wall Street interprets as meaning at least another half-point cut at the Fed's meeting on Jan. 29, if not sooner.

Many on Wall Street back Bernanke. "I'll defend the Fed," says Bear Stearns chief economist David Malpass. "Part of the slowdown is the result of banks' tightening credit, and you help that by lowering the Fed funds rate." Mickey Levy of Bank of America agrees: "You need to lower rates to offset the drag on housing."

But Bernanke is setting the stage for an even bigger recession down the road. Just as the ultra-low rates of the early 2000s created many of the problems we're experiencing today, pumping money into the system would probably stoke inflation, forcing the Fed to hike rates sharply in the near future. "It's better to take a small recession and kill inflation immediately instead of facing high inflation and a really big recession later," says Carnegie Mellon economist Allan Meltzer.


and by the way - I got to bring home so extracurricular reading tonight from the office - it's the Fed's 4th quarter Economic review - with such tantalizing headlines as:

Rising Foreclosures in the United States: A Perfect Storm

Booms and Busts: The Case of Subprime Mortgages

Risks of Identity Theft: Can the Market Protect the Payment System?

and many more!

I am so excited - bedtime reading material!

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  -)Dow) Futures plunge (-546) on U.S. recession fears UpInArms  Jan-21-08 05:37 PM   #0 
  - tomorrow is not going to be pretty  highnooner   Jan-21-08 05:56 PM   #1 
  - Looks like "Bloodbath on Wall Street" tomorrow.  Dr.Phool   Jan-21-08 06:02 PM   #2 
  - 'Wave of panic' as market slides  Sees Clearly   Jan-21-08 09:10 PM   #24 
     - "there are some great stocks at fantastic value"  Ghost Dog   Jan-22-08 02:28 AM   #55 
  - I think we're all going to feel the love.  phantom power   Jan-21-08 06:06 PM   #3 
  - I really feel leaden about posting the Stock Market Watch tomorrow.  ozymandius   Jan-21-08 06:34 PM   #4 
  - it's all feeling mighty weird  UpInArms   Jan-21-08 06:41 PM   #5 
  - That's just the thing: Ben's hands are tied. He cannot slash rates enough  ozymandius   Jan-21-08 06:50 PM   #7 
  - Oh PUHLEEZ! They're rushing to the dollar for safety?!?!...just peeked and  54anickel   Jan-22-08 05:03 AM   #57 
  - It will be a slow motion second by second train wreck.......  0007   Jan-21-08 06:45 PM   #6 
  - It's gonna be a real chore early in the morning.  Dr.Phool   Jan-21-08 06:51 PM   #8 
  - here's that Chopper Ben article: Will the cure be worse than the disease?  UpInArms   Jan-21-08 06:51 PM   #9 
  - In this age of super-short-term results, will the Fed take a longer-term stance?  Roland99   Jan-21-08 09:09 PM   #23 
     - wow  UpInArms   Jan-21-08 09:18 PM   #28 
        - BWA HA HA HA HA HA HA HA!!!  Roland99   Jan-21-08 09:43 PM   #42 
        - !!!  Yael   Jan-21-08 11:10 PM   #48 
  - keep up the good work  kineneb   Jan-21-08 06:59 PM   #10 
  - ....  AZDemDist6   Jan-21-08 07:02 PM   #12 
  - And like you, I'll be at school all day.  Finnfan   Jan-21-08 07:12 PM   #13 
  - Finnfan, looks like your end of January prediction is right on the money.  Radio_Lady   Jan-21-08 11:15 PM   #50 
  - Me, I'll be quite quiet tomorrow.  Ghost Dog   Jan-21-08 07:18 PM   #14 
  - Morgan Stanley (not Roach) comment:  Ghost Dog   Jan-21-08 07:21 PM   #15 
  - I have been watching this unfold over the last few weeks  debbierlus   Jan-21-08 08:54 PM   #18 
  - I almost never post in it, but I keep a tab open all day and check often  Yael   Jan-21-08 11:12 PM   #49 
  - 25+ Years of Insane Conservative Economic Policies  Phred42   Jan-21-08 06:59 PM   #11 
  - At 9:37 pm EST, Dow future is up 45 points  ckramer   Jan-21-08 08:38 PM   #16 
  - I suspect you are right.  pa28   Jan-21-08 09:07 PM   #21 
  - current DOW futures  RantinRavin   Jan-21-08 09:09 PM   #22 
  - Do you have a link for these numbers?  ckramer   Jan-21-08 09:19 PM   #29 
  - Where did you get that? Bloomberg's latest numbers are still dire...  Roland99   Jan-21-08 09:11 PM   #25 
     - check out this link  ckramer   Jan-21-08 09:16 PM   #27 
     - it's currently showing the "last" at 11691...  QuestionAll   Jan-21-08 09:21 PM   #32 
        - I don't know what that 11691 number means  ckramer   Jan-21-08 09:25 PM   #34 
           - that 11691 represents what the dow would have opened at at that moment.  QuestionAll   Jan-21-08 09:38 PM   #38 
     - i think that means that it's up 45 points from the lowest point- when he posted it...  QuestionAll   Jan-21-08 09:19 PM   #30 
  - There hasn't been a Bull Market in the U.S. since 1999. The Dow is lower than the day W took office  leveymg   Jan-21-08 08:46 PM   #17 
  - Ummm...the DOW is NOT lower  RantinRavin   Jan-21-08 09:07 PM   #20 
     - Depends what currency/commodity you valuate it in...  skids   Jan-21-08 09:29 PM   #35 
  - Recession??? Economic meltdown is closer to the truth...  whistle   Jan-21-08 08:59 PM   #19 
  - so THE BUCK STOPS HERE.... go go gop go go gop  happygoluckytoyou   Jan-21-08 09:14 PM   #26 
  - Now at 10:20 EST, Dow future is up 107 points  ckramer   Jan-21-08 09:21 PM   #31 
  - you are misreading the numbers.  QuestionAll   Jan-21-08 09:23 PM   #33 
  - Future closing number != the market closing number n/t  ckramer   Jan-21-08 09:32 PM   #36 
     - what?  QuestionAll   Jan-21-08 09:39 PM   #39 
        - Look at the oil future number - it's 87.90  ckramer   Jan-21-08 09:54 PM   #44 
           - the friday numbers aren't on that board.  QuestionAll   Jan-21-08 10:39 PM   #47 
  - looks down via Bloomberg  DemReadingDU   Jan-21-08 09:36 PM   #37 
     - it is down...ckramer is a little...confused.  QuestionAll   Jan-21-08 09:40 PM   #40 
     - I wouldn't trust these numbers from Bloomberg  ckramer   Jan-21-08 09:41 PM   #41 
        - You are misreading the numbers. You are looking at after hours future trades, not the index  Yael   Jan-21-08 11:16 PM   #51 
        - What real time are you talking about? It is 12:17 am EST  Yael   Jan-21-08 11:17 PM   #52 
  - Second day of down markets in Asia  FarCenter   Jan-21-08 09:51 PM   #43 
  - Panic sparks plunge in global markets  FarCenter   Jan-21-08 10:08 PM   #45 
  - I hate to reduce such a complex problem to one issue ....  Trajan   Jan-21-08 10:21 PM   #46 
  - But Shrub is sending us all $800. That should fix everything.  Yael   Jan-21-08 11:18 PM   #53 
  - If that happens to the market four or five times in near future then I will feel relief  nolabels   Jan-21-08 11:19 PM   #54 
  - Yes, the blowout of this bubble is absolutely necessary, the sooner the better,  Ghost Dog   Jan-22-08 02:50 AM   #56 
  - and damn the flippers all to hell, too  clspector   Jan-22-08 08:31 AM   #59 
  - EVERYBODY PANIC!1!!  AngryAmish   Jan-22-08 08:17 AM   #58 

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