Fed About to Drown U.S. Dollar Holders with “Liquidity”
December 6th, 2007Via: Bloomberg:
Federal Reserve officials, who are forecast to lower their main interest rate next week, are signaling that they are looking for additional ways to increase credit to companies and consumers.
The Fed may lower the discount rate — what it charges banks for short-term direct loans — by a quarter-point more than the benchmark rate after Vice Chairman Donald Kohn and San Francisco Fed President Janet Yellen publicly expressed frustration that previous rate cuts haven’t encouraged banks to lend to one another.
Such a move would narrow the gap between the two rates — normally 1 percentage point — to a quarter-point. Economists said that may spur lending by easing the stigma of borrowing at the discount rate, letting firms claim they are taking advantage of a better deal.
“The Fed has to re-liquefy the markets to reduce the risk of a financial accident,” said Lou Crandall, who used to work at the New York Fed and is now chief economist at Wrightson ICAP LLC, a Jersey City, New Jersey-based research firm that focuses on government debt.
Policy makers are struggling to contain a crisis of confidence among banks that sent the cost of three-month loans between lenders to the highest in seven years.
I’m still struggling to understand what it means to my world when banks don’t want to lend to one another no matter how low interest rates go. What does this mean? Are the banks finally getting a cerebral cortex that understands you don’t lend money to another bank that doesn’t have cash reserves and have been humping on the sub prime mortage world to make a profit? Am I alone in not understanding what is going one here?
What does it mean when “The Fed has to re-liquefy the markets to reduce the risk of a financial accident,�
Uh didn’t the financial car already crash into the cement wall at 90 mph?
Reminds me of an old nursery rhyme: All the Kings horses and all the kings men, couldn’t put Humpty together again.
Crisis of confidence? I’ve been sucking my financial thumb for months now. A lower interest rate only makes me more insecure in that it will make the dollar less attractive to foreign investors ie Japan and China. Instead of the TV show “Dialing for Dollars,” where everyone is happy, the US we’ll be watching the horror show “Dumping US Dollars.”
Humpty Dumpty.
Oh wait, I forgot. They don’t put stuff like this on the TV here in the US. We need to keep the US population on a sedative/laxative/purgative routine visa vie their tv’s and booze and football.