Fed cuts rates quarter point to zero percent, is open for more

[FRED]

Fed cuts rates quarter point to zero percent, is open for more

Central bank says it will cut rates as needed to boost economy

Last update: 4:52 p.m. EDT Oct. 30, 2009

WASHINGTON (MarketWatch) -- The Federal Reserve on Wednesday slashed overnight interest rates and left the door open for more cuts -- all part of an effort to return confidence to investors so that a cratered economy doesn't crater further.

In its statement, the Federal Open Market Committee said it had unanimously decided to cut its benchmark target interest rate by a quarter of one percentage point to 0% and clearly signaled it was considering further cuts. This signal came in a statement saying that the main risk facing the economy was weak growth.

The cut brings the funds rate to its lowest level ever.

“We are confident that the Cash Card program that we are coordinating with the Treasury Department has produced enough inflation but we are prepared to target negative interest rates–pay consumers to borrow–if necessary,” said Federal Reserve Chairman Ben Bernanke.

Congress passed the 2009 Emergency Consumption Stimulus Act in June 2009 issued every taxpayer an Emergency Consumer Credit Program Card with a $2,000 account balance to the US Treasury at a cost of $260 billion. To discourage saving, the only restriction on the use of the Program Card is that the balance cannot be transferred. To encourage continuous use, the account balance declines by $200 monthly so that at least $200 must be spent each month.

AntiSpin: Note the date, one year in the future. Zero percent is where we are headed and likely sooner than a year from now. Then what?

That’s when government gets really, really creative.

At one point the during Japan's 18 years of drifting in and out of recession the Japanese government issued coupons to Japanese consumers to spend, but the clever savings-minded Japanese purchased small items with the coupons and banked the change.

Our government will be more creative. Expect US issued credit or debt cards by 2010.

You heard it here first!

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[don]

Re: Fed cuts rates quarter point to zero percent, is open for more

And before that a loosening of eligibility for food stamps (as per military families), a federal mortgage relief bill, extended unemployment benefits to historical lengths, consumer energy assistance (home & car) and additional federal health care subsidies, every one a substitute for wage and salary increases.

As predicted by iTulip, as in many 2nd or 3rd world countries, widespread government 'employment'.

Print, baby, print.

[Nervous Drake]

Re: Fed cuts rates quarter point to zero percent, is open for more

.

[Rajiv]

Re: Fed cuts rates quarter point to zero percent, is open for more

Sort of reminds me of a 19th century satire in Hindi by an Indian Playwright Baratendu Harish Chandra - "Andher Nagari, Chaupat Raja - Take ser bhaji, Take ser Khaja"

The title basically transliterated means - "Dark City, Bankrupt King -- buy anything for a dollar whether it be a Kia or it be a Ferrari."

[bart]

Re: Fed cuts rates quarter point to zero percent, is open for more

As predicted by iTulip, as in many 2nd or 3rd world countries, widespread government 'employment'.

Print, baby, print.

Currently, total US Federal, state and local government expenditures are about 47.5% of GDP - no, that isn't a typo.

[necron99]

Re: Fed cuts rates quarter point to zero percent, is open for more

Amusing [semi-] joke! What's more, it dovetails nicely and provides me an opportunity to inject some of my patented gloom and lugubrious doom!!

Anyone see this website before?

http://www.breadwithcircus.com/ecollapse.html

The author claims to have seen the Federal contingency plan for the scenario where the U.S. government officially defaults on its debts. I think he's right that the Feds must have such a plan -- they plan everything -- just, who knows if this is really it or not.

I'm not necessarily endorsing that this plan is true, in fact it's left-over from 2004 and predicts that Bush/Cheney will implement it before the 2008 elections. That's less than a week from now.

But it's an interesting thought exercise -- all the world's liquidity _is_ being eaten up to service U.S. debt, so what happens when we finally hit the wall? What would the government do and what plans are already being formulated?

The scenario in the web page dovetails with the fictitious "government debit card" here like this:

1) Feds declare "force majeure", after the Asian and European markets close, while Wall Street is still on lunch hour.

2) Over the course of a few days, panic selling shuts down all the world's markets.

3) Meanwhile, Feds parachute elite troops in to secure gold bullion in all Treasury locations. Current U.S. dollar is declared worthless around the world and, eventually, by the Feds themselves. This is accompanied by capital controls, gold ownership controls, and possibly martial law.

4) With no economic medium of exchange available, National Guard troops are ordered to secure the nation's food and fuel supplies in order to prevent looting and rioting, etc.

5) Feds issue electronic "New Bonar" debit cards!! All you economic productivity now belong to us. You still have perfect freedom, because Freedom is what we stand for in the good ole' U.S. of A.: you can use the "New Bonar" electronic cards to purchase food and fuel from your friendly neighborhood National Guard repository... or you can choose to starve.

I'm not ready to declare this as anything more than a thought experiment... but the current crop of politicians, on both sides of the aisle, have more than proved their willingness to intervene in the economy in order to protect existing economic power. Is it really that far from a $700 Billion + bailout of fictitious Wall Street wealth, to a wholesale takeover of the monetary system itself in order to keep the status quo up and running? Their other options are evaporating quickly.

[doom&gloom]

Re: Fed cuts rates quarter point to zero percent, is open for more

I am personally beginning to think we never get to ZIRP. The creativity of
the Fed in using all these wonderous new tools of the post-FIRE'd economy
may well allow them to escape ZIRP for all practical purposes.

[necron99]

Re: Fed cuts rates quarter point to zero percent, is open for more

Sorry folks, it's late and I'm sleep-deprived, the above scenario I posted is a bit speculative even for _me_, and that's saying something... not to mention, reducing the financial crisis to liquidity is too glib by half, also so is attributing the motive to "keep the status quo up and running"... half of iTulip is dedicated to asking "what happens when we hit the wall"; as I understand it, the more scholarly worst-case scenario is simply devaluation. So let's assume the next few commenters don't need to castigate me on those points, n'kay? Sorry, half-baked post. I was just amused when I saw such a detailed exploration of the martial-law scenario, just think of it as a reminder of other options still floating out there...

[Guest]

Re: Fed cuts rates quarter point to zero percent, is open for more

Currently, total US Federal, state and local government expenditures are about 47.5% of GDP - no, that isn't a typo.

I hope Bill will forgive me for posting this link to a find of his from out of the select forums. There seems a reflexive conclusion that in a national implosion the unrelenting expansion of government debt and it's intrusion into the national economy is a self evident horror.

Tak 45 minutes out of your lives and listen carefully to this Japanese American Fed economist analyse the Japanese experiment - if nothing else, it should notably complicate our reflexive and too easy nostrums about how the "Banana Republicization of America in this emerging national depression will be ensured" by a growing government attempt at stimulus.

Dr, Koo seems a smart man with an inquiring and agnostic spirit, and makes a fascinating analysis. The conclusion? Many of our reflexively libertarian instincts in a national depression are just plain wrong according to a real life case-study - Japan. View it and decide for yourselves. For myself, the constant vituperation against government forays into stimulus and propping efforts are anything but a black and white case of right or wrong.

____________

Apologies to Bill for the repost without his express permission (t was a public archive). And thanks to him also for this great find.

Bill: Japan USA comparison, I posted before and highly recommend a listen.
http://www.csis.org/component/option...,view/id,1828/

[grapejelly]

Re: Fed cuts rates quarter point to zero percent, is open for more

Obama has come out in support of tax credits for the middle class...which amounts to more of the same tax policy...give government handouts to as many folks as possible. This is exactly what I expect to continue and get worse in the name of "stimulus".

[vinoveri]

Re: Fed cuts rates quarter point to zero percent, is open for more

AntiSpin: Note the date, one year in the future. Zero percent is where we are headed and likely sooner than a year from now. Then what?

That’s when government gets really, really creative.

At one point the during Japan's 18 years of drifting in and out of recession the Japanese government issued coupons to Japanese consumers to spend, but the clever savings-minded Japanese purchased small items with the coupons and banked the change.

Our government will be more creative. Expect US issued debit cards by 2010.

You heard it here first!

How does this comport with Ka-Poom, i.e., what's inflation in Nov 2009?
Are these stimuli to create demand OR help folks pay for inflated consumables?

[we_are_toast]

Re: Fed cuts rates quarter point to zero percent, is open for more

Currently, total US Federal, state and local government expenditures are about 47.5% of GDP - no, that isn't a typo.

http://www.bea.gov/newsreleases/nati...df/gdp308a.pdf

Total GDP 14.4T
Total gov (fed and local) 2.95T
% of Gov 2.95/14.4 = 20.4% ?

I heard 2 different people on 2 different networks say we would get to 0%. The expectations are there.

Nobody anticipated what FDR was going to do to resolve GD1, and I don't think we can anticipate what a pres Obama will do. My guess is we're going to see things we don't expect. The worlds financial system will need to be rebuilt and it won't look like it does today. We're in for some surprises and the hole that was dug may take a long time to fill in, but it won't get as deep as we expect.

[Rajiv]

Re: Fed cuts rates quarter point to zero percent, is open for more

From the New York Times - A Rate of Zero Percent From the Fed? Some Analysts Say It Could Be Coming

WASHINGTON — Zero percent interest rates! It sounds like free money, or maybe a promotional deal from General Motors to get people to buy Hummers. Are zero rates coming to the Federal Reserve?

Multimedia


Interactive Feature
Seven Weeks of Financial Turmoil

Related

Concerned Fed Trims Key Rate by a Half Point (October 30, 2008)

Times Topics: Credit Crisis — The Essentials

As it happens, the Fed is surprisingly close to that point already. On Wednesday, the central bank lowered its target for the federal funds rate — the rate that banks charge each other on overnight loans — to 1 percent from 1.5 percent.

But in practice, the actual federal funds rate fluctuates slightly around its target as the Fed carries out its open-market operations in the money markets. And because banks and financial institutions have been so frightened about lending in the last month, the actual Fed funds rate has been below 1 percent for the last two weeks. On Tuesday, it averaged only 0.67 percent.

A growing number of analysts now predict that the economy is so weak that the Fed will have to reduce its official target to zero if it wants to jumpstart the stalled economy.

[don]

Re: Fed cuts rates quarter point to zero percent, is open for more

Japan Edges Into the Lead Over US :p

Japan's desperate £260bn bid to kick-start economy

Japan is to give emergency cash hand-outs to every household in the country regardless of whether they are rich or poor as a part of $260bn (£159bn) blitz to kick-start the world's second-largest economy and prevent a slide back into deflation.


http://www.telegraph.co.uk/news/worl...t-economy.html

[bart]

Re: Fed cuts rates quarter point to zero percent, is open for more

http://www.bea.gov/newsreleases/nati...df/gdp308a.pdf

Total GDP 14.4T
Total gov (fed and local) 2.95T
% of Gov 2.95/14.4 = 20.4% ?

I heard 2 different people on 2 different networks say we would get to 0%. The expectations are there.

Nobody anticipated what FDR was going to do to resolve GD1, and I don't think we can anticipate what a pres Obama will do. My guess is we're going to see things we don't expect. The worlds financial system will need to be rebuilt and it won't look like it does today. We're in for some surprises and the hole that was dug may take a long time to fill in, but it won't get as deep as we expect.

Those stats are incorrect or spun - they don't include everything like off budget spending etc. Fed/BEA link sources shown in chart below.
As anyone can also see, this is not a short term trend.