http://hosted.ap.org/dynamic/stories/F/FED_INTEREST_RATES?SITE=UTSAC&SECTION=INTERNATIONAL&TEMPLATE=DEFAULT

Fed cuts interest rate 3/4 of a point

By MARTIN CRUTSINGER
AP Economics Writer

WASHINGTON (AP) -- The Federal Reserve, confronted with a global stock sell-off fanned by increased fears of a recession, slashed a key interest rate by three-quarters of a percentage point on Tuesday and indicated further rate cuts were likely.

Woohoo! Time to go get a variable rate mortgage! :|

I have not the words. This is probably the worst response to a structural economic problem anyone has made in the last 20 years. The only thing dumber would be to print more money and hand it out.

It's another feel-good band-aid approach that does more harm than good. Our economy is strengthened much more by the stock market than by "buying more ****," and this drags the stock market and other investments down like crazy - I should be receiving notices from my banks shortly informing me that my interest rates there have been lowered as well.
A few more people buying cars or houses because of a slightly lower interest rate is not going to fix the economy.

The only thing dumber would be to print more money and hand it out.Isn't it basically the same thing?

The only people who lose are those who have money in their pocket or in the bank. Based on what I know, that's not many people...

A few more people buying cars or houses because of a slightly lower interest rate is not going to fix the economy.I think there is more than just spurring individuals to buy more. There's also corporate credit. If you decrease the rate at which corps can borrow, they're likely to invest in new facilities, capital equipment, etc.

In any case...my fixed-rate mortgage is at 5.75%. I keep rooting for lower interest rates so that I can refinance it and get a lower rate. Even half a percent will net me cash. That's cash I can either save or spend. I'm not sure how that's bad for me...particularly if rates climb again sometime in the next 30 years.

Isn't it basically the same thing?

The only people who lose are those who have money in their pocket or in the bank. Based on what I know, that's not many people...

Everyone who doesn't get a raise equal to the percentage the money supply is increased loses. Wages already go up at a lower rate than inflation. And increasing monetary supply simply drives up inflationary pressures. It only spurs the economy when the problem is not enough money available for growth. Our problem is over-production and over-valuation and a dramatic increase in the cost of energy, which is not going to improve by creating more inflation.

In any case...my fixed-rate mortgage is at 5.75%. I keep rooting for lower interest rates so that I can refinance it and get a lower rate. Even half a percent will net me cash. That's cash I can either save or spend. I'm not sure how that's bad for me...particularly if rates climb again sometime in the next 30 years.

For you personally, if you manage to get a lower fixed-rate mortgage rather than variable, it'll save you some cash.
But such a large percentage of the economy is tied up in investments that it's going to hurt every time the central perentage rate gets dropped because the value of all of those investments are going to drop along with it.

Cool-looking (imho) chart concerning Federal Funds Rate:

http://www.msnbc.msn.com/id/22780489/

Are we gonna end up with the ZERO percentage rate that ruled in Japan for many years?

and, where do we go from there?

The Fed seem to have only this one method of countering financial problems - I sometimes wonder if they actually have any trained economists on their staff, or are they all Bush buddies from Texas ?

Are we gonna end up with the ZERO percentage rate that ruled in Japan for many years?

and, where do we go from there?

The Fed seem to have only this one method of countering financial problems - I sometimes wonder if they actually have any trained economists on their staff, or are they all Bush buddies from Texas ?

Under Greenspan, they actually had good leadership and insight. But Greenspan was not afraid of doing the unpopular. Reagan was regularly furious with the man because he wouldn't cave in to make things look rosier at the expense of the long-term health of the economy. Bernake seems to just be a party puppet. And let's not forget that these are all bankers. An industry whose deregulation is largely to blame for the upcoming storm. They are progressively becoming more and more short-term thinkers because their organizations are insurance and investment companies now, instead of banking institutions. They are about making money as opposed to saving money.
We've been in this recession for almost a decade. The economy has to be allowed to hit its balance point. Pouring money into it is not the answer, that will simply devalue the money. Bankers are afraid of devaluation, because they are savers. Investors don't care because any movement in the market is an opportunity to profit. They will hedge. This is why banks were regulated in the first place.

Everyone who doesn't get a raise equal to the percentage the money supply is increased loses.Yes, I agree with that. I didn't think about that.

Under Greenspan, they actually had good leadership and insight.Actually, I think Greenspan is one of the culprits of the situation we find ourselves in now.

And let's not forget that these are all bankers. An industry whose deregulation is largely to blame for the upcoming storm. They are progressively becoming more and more short-term thinkers because their organizations are insurance and investment companies now, instead of banking institutions. They are about making money as opposed to saving money.
I'm not sure it's due to deregulation. I think there are a lot of factors. Borrowers got into loans they couldn't afford...knowingly or unknowingly. I guess everyone wishfully thought that interest rates would stay low forever and that home values would keep increasing forever. The other thing is, the lenders made loans to people they knew couldn't repay. Why would they do that? It seems like a very bad way to run a business. Well, I think there are at least two reasons. First, I think there was some pressure from the government to make loans to more minorities and low-income folks. Either make the bad loans or be subject to a lawsuit. Wouldn't want to be accused of discrimination. Right? The other thing is...I'm guessing a lot of lenders were simply delusional. If they turned down a loan, they figured they would be giving the business to someone else who would approve it.

When I bought my first house in the mid-90s, there were a lot more rules. And, I think they made a lot of sense. For example, you needed to verify where your downpayment was coming from. There were no "creative" financing solutions to borrow the downpayment too. And, all your debt payments per month, including the proposed mortgage, couldn't exceed 35% of your gross income. I don't know if these were laws, or just industry standards. But, with these rules, it becomes a very easy calculation to make. If you know the monthly debt you have and the interest rate you can get, a simple calculation will tell you exactly how much you can borrow to buy a home. Unfortunately, all that seems to have gone out the window. People were bidding on houses they couldn't afford. This caused legitimate buyers to have to pay more unfairly. This led to the ridiculous run up in real estate values.

For you personally, if you manage to get a lower fixed-rate mortgage rather than variable, it'll save you some cash.Exactly! Even if I could save one or two hundred dollars a month, that's equal to getting a raise that far outpaces inflation.

But such a large percentage of the economy is tied up in investments that it's going to hurt every time the central perentage rate gets dropped because the value of all of those investments are going to drop along with it.It depends on which investments you mean. I think bonds will certainly pay a lower percentage rate. So will CDs. The stock market may be spurred on by the lower rates...who can tell? The stock market does strange unpredictable things. I think real estate will actually keep it's real value relatively stable. That means if the dollar declines, it will take more dollars to buy the same property. Same thing with gold and other precious metals investments.

I have not the words. This is probably the worst response to a structural economic problem anyone has made in the last 20 years. The only thing dumber would be to print more money and hand it out.

They just did that today!! Either that or borrow the 150 billion from China. Actually I thought Huckabee in the debate tonight had a better idea with road construction. 150 billion spent on roads would stay in the US as opposed to trickle down to China.

I'm not sure it's due to deregulation. I think there are a lot of factors. Borrowers got into loans they couldn't afford...knowingly or unknowingly. I guess everyone wishfully thought that interest rates would stay low forever and that home values would keep increasing forever. The other thing is, the lenders made loans to people they knew couldn't repay. Why would they do that? It seems like a very bad way to run a business. Well, I think there are at least two reasons. First, I think there was some pressure from the government to make loans to more minorities and low-income folks. Either make the bad loans or be subject to a lawsuit. Wouldn't want to be accused of discrimination. Right? The other thing is...I'm guessing a lot of lenders were simply delusional. If they turned down a loan, they figured they would be giving the business to someone else who would approve it.

When I bought my first house in the mid-90s, there were a lot more rules. And, I think they made a lot of sense. For example, you needed to verify where your downpayment was coming from. There were no "creative" financing solutions to borrow the downpayment too. And, all your debt payments per month, including the proposed mortgage, couldn't exceed 35% of your gross income. I don't know if these were laws, or just industry standards. But, with these rules, it becomes a very easy calculation to make. If you know the monthly debt you have and the interest rate you can get, a simple calculation will tell you exactly how much you can borrow to buy a home. Unfortunately, all that seems to have gone out the window. People were bidding on houses they couldn't afford. This caused legitimate buyers to have to pay more unfairly. This led to the ridiculous run up in real estate values.

The recession has been running for a lot longer than the mortgage melt-down. The reason for the mortgage industry to run the way it did was the decentralization of loans. If you have to service a loan for 30 years, you are careful about who you loan the money to, their ability to pay it back, and the value of the collateral. But, if you are just going to take that loan and sell it to someone else, then what you are interested in is your ability to sell it, you don't care about much else. Of course, you have to sell the loan you write, so mortgage companies were in the business of knowing the rules banks used to protect themselves and manipulating the applications as far as they could to get the loan sold. It was like a game of musical chairs, where the chairs were slowly getting replaced by ones made of toothpicks. Then the music stopped. Mortgage companies got stuck having to hold loans they wrote, which they really knew were higher risk than the rate they sold. Banks got stuck with a lot of debt they have to re-value. And investors in mortgage-backed securities have less value in their portfolios than they thought.
Of course, these guys will just go cash their paychecks and find another job swindling someone else.

U.S. Stocks Gain After Fed Cuts Benchmark Rate By Half Point
By Michael Patterson

Jan. 30 (Bloomberg) -- U.S. stocks gained for a third day, led by banks, after the Federal Reserve cut its benchmark interest rate by half a percentage point to keep the economy from falling into a recession.

Bank of America Corp., General Electric Co. and Exxon Mobil Corp. helped the Standard & Poor's 500 Index recover from an earlier decline of as much as 0.7 percent. Financial shares rallied to their highest level in a month, as Washington Mutual Inc. rose more that 5 percent in New York trading for the third time this week.

The S&P 500 rallied 10.58, or 0.8 percent, to 1,372.88 at 2:31 p.m. in New York, trimming its decline for the year to 6.3 percent. The Dow Jones Industrial Average gained 101.78, or 0.8 percent, to 12,582.08. The Nasdaq Composite Index added 18.23, or 0.8 percent, to 2,376.29. European and Asian stocks dropped today after UBS AG and BNP Paribas reported mortgage-related losses.

``This is terrific,'' said Fritz Meyer, the Denver-based senior market strategist for AIM Investments, which manages about $166 billion. ``It's a further indication the Fed is getting with the program.''

The Fed's cut in its target rate for overnight loans between banks to 3 percent was its second in less than two weeks, representing the fastest easing of monetary policy since 1990.


http://www.bloomberg.com/apps/news?pid=20601087&sid=a9KmGL6plk9U&refer=home

Great.... two more months like January and there will be no room for the Fed to maneuver at all. What moron takes a series of inflation warnings and chooses to drop the overnight rate by over 1/4 of its value? I guess the answer to that question starts with a B and ends in ernake....