Bernanke Blinks

Fedfunds FOMC Chair Ben Bernanke surprised me (and apparently, quite a few others) by slashing both the Fed Funds Rate and the Discount Rate 50 bps each.

Markets loved Larry Kudlow’s "shock & awe," with the Dow rallying over 300 points on the session. Yield on the 10 year is now well below 4.50%.

Why did Bernanke blink? "The tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally." The hope is today’s action will "help forestall some of the adverse effects on the broader economy" that could arise from financial market disruptions.

The flip side is concerns about inflation. The FOMC statement read "Readings on core inflation have improved modestly this year. However, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully."

As to the Dollar, Oil, Gold,  soft commodities: We’re long them all (‘cepting the greenback) through one asset class or another.

The Fed now has a third problem to deal with: They have become Wall Street’s bitch. They may find that’s a difficult condition to wriggle out from . . .

For more details, see:

Christmas in September

Jim Rogers, Faber Say Fed Rate Cuts Will Spur a Recession

Economists React: ‘One and Done’?

Half-Point Surprise

Who Messed Up the Markets: Hedge Funds, Greenspan?

Former Fed Chair Alan Greenspan: the era of low inflation is over

The Fed is Spooked

Fed Funds Rate Cut: Watch Long Rates

FOMC Statement

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What's been said:

Discussions found on the web:
  1. Chief Tomahawk commented on Sep 18

    I have a thought to short the Dow Friday afternoon. I think we’re going to push to 14,000 by then and retest the previous highs. Then more bad credit news surfaces someplace to take us lower. Anyone have thoughts on this?

  2. TheGuru commented on Sep 18

    9.18.07 — Ben Bernanke declares war on the fiscally prudent (there are about 2 dozen of us) in America.

  3. SPECTRE of Deflation commented on Sep 18

    Gold up 9.80 at CBOT to 725, Silver up .25 close to 13 and the dollar tanking to just over 79. Boy did they ever make a huge mistake. Who in their right mind wants to take a double beating with inflation and devaluation of the dollar when looking at market returns?

    Kiss the market goodbye. I’m with Jim Rogers who has made real money as opposed to Ben who is an academic assclown.

  4. Joe Klein’s conscience commented on Sep 18

    The Fed was never your friend. After all, instead of asking us to sacrifice a few years ago, a certain someone told us to go shopping instead. Hell, he wanted to cut taxes during a war for gosh sake.

  5. Christopher Laudani commented on Sep 18

    Fed has become Wall Street’s bitch. Hahahah!

    Get me another beer, bitch!

  6. TheGuru commented on Sep 18

    Never said they were my friend. I had a glimmer of hope that Bernanke would not be Greenspan’s lapdog. Sadly, that glimmer of hope was dashed.

  7. SoNotintheKnow commented on Sep 18

    Maybe now I will be able to sell my house in Las Vegas, and NOOO!!!, I am not a NINJA or some skanky speculator who yanked all the equity out of my house and then let it go to foreclosure. I am just one of those folks with great credit, a solid job future and a relocation for my job. I am not WALL STREET and Bernanke is definitely not my bitch…BTW, I am extremely fiscally conservative…

  8. MarkTX commented on Sep 18


    I would not short this market(indexes) now…even with a tight stop.

    They can jack up the market in minutes and/or in the Futures/overnight circus.

    The financials, however, might make a few good targets when some other credit news surfaces and this ramp extends itself….

    My guess is at least 14,500 on the DOW because it is just too easy, and money(USD) became worthless today.

  9. TheGuru commented on Sep 18


    The psychology in the housing market has turned negative. Lower your asking price and you will clear out your inventory.

  10. lauteus commented on Sep 18

    wait, I don’t get it… rate cuts for an economy that cries for rate cuts is somehow good? I thought that kinda stuff happens when the shite hits the fan, no? some say he is proactive by doing so, take another step back folks and look at, you know… the big picture.

    BB pushed big, twice… that somehow tells me that the FED is worried as hell about the economy…

    I sure as hell wouldn’t buy into this market right now (short or long)…

  11. Peter commented on Sep 18

    In response to the actions by Helicopter Ben, the fed funds futures is pricing in a 90% chance the Fed cuts rates again in Oct to 4.5% up from a 26% chance priced in yesterday that we’d see a 4.5% fed funds at that meeting. The market is also pricing in a 60% chance that the fed goes another 25 bps in Dec to 4.25% up from a zero chance priced in yesterday.

  12. rob commented on Sep 18

    Lol, folks are going to be loading up on everything non-dollar like it was going out of style.

  13. SoNotintheKnow commented on Sep 18

    “The psychology in the housing market has turned negative. Lower your asking price and you will clear out your inventory.”……

    Duhhh….Does not help if there ARE NO BUYERS!!!! because there is no money to borrow…(Not my words but Barry R’s words on Kudlow yesterday)

  14. mhm commented on Sep 18

    Revisiting the forecast thread

    My analysis was correct:
    My (folly) forecast for the Cut Day: the US stock market will track the FX market.

    – dollar sell off -> global meltdown.
    – in any other case the US stock market will go up.

    If I was a large institution (I’m not) I would have a large carry position at the ready, in cash.

    – if there is a .25 or no cut at all I’d jump into the stock market.

    – a larger cut may cause a dollar sell off and I’d close my carry position. If not I’d jump into the stock market.


    There we have 300 points up, on a slowly sinking dollar. Very sad actually.

  15. Estragon commented on Sep 18


    Living in LV, you’ll know about games of chance.

    If your potential buyers can’t finance, you could take back a high rate vendor 1st lien and use that as collateral on your new home. You’ll even pick up some vig, if your credit is good.

  16. Stuart commented on Sep 18

    Obviously the Fed is more concerned about financial markets more than they’re letting on. Ron Insana was speaking about the derivative markets and perhaps there’s some fireworks starting to unfold in that pandora’s box. Maybe the Fed sees that too. Either way they’re obviously still very concerned and by taking such a drastic action, is in effect, calling Lehman a bunch of liars.

  17. MarkTX commented on Sep 18


    “There is no money to borrow”


    Why would one want to accept risk and loan the banks money at a low interest rate!!!!!

    And NOW….

    Interest rates went lower today….ok

    As a bank customer/depositor, why would I accept even less return on my money from the bank??….

  18. Josh commented on Sep 18

    This was a good day to rebalance the old 401k. Potential upside vs downside.

  19. Bob A commented on Sep 18

    Yep all the old folks living off the interest on bonds who just took a pay cut, while paying hefty annual increases in their assisted living rents and healthcare costs, really appreciate that all the brokers on Wall Street can now afford a new Benz or Range Rover or Bentley… because that’s the way it should be no?

  20. mappo commented on Sep 18

    DOW’s up 300pts because Ben Dover-Bernanke has confirmed that he is in fact Wall Street’s bee-atch.

  21. MarkTX commented on Sep 18

    Josh, If you mean you rebalanced after today’s rally…

    I will drink to that!!!!!

    Hell, it is even $1 beer day at one of my

    “speak easys” today!!!!!!

  22. Joe Klein’s conscience commented on Sep 18

    I don’t believe it .. The Money Honey was just parroting Kudlow … she used his “Keeping America Great” line … lol how does those people at CNBC sleep at night?

  23. UrbanDigs commented on Sep 18

    I would seriously consider shorting after this runup. The fed pulls out this unanimous move, how are we not to suspect that there are problems out there? 4% from record highs and the fed pulls out this move. When did this happen in past history when oil and other commodities were at such high levels and US dollar at such low levels?

    Shit is about to hit the Bernanke fan!

  24. Neal commented on Sep 18

    ‘Paging “Calamity” Poole, paging “Calamity” Poole, confidence resoration required in aisle 6..”

    So can we call this a calamity now?

    Is your confidence in the economy restored now?

  25. PegofLI commented on Sep 18

    thank you ben, you saved my 401k and my retirement! I will now look to switch into cash, oil and gold.

  26. Bif of glasgow commented on Sep 18

    maria’s nose used to be a roundish roman type.
    now it is strait. what happened?

  27. Das Gherkin commented on Sep 18

    In retrospect, it now seems obvious that the man who once swore he would drop money from helicopters to stave off a deflationary episode would make the make the maximum fed/discount cuts (within reason).

    His “credibility” has been restored with Wall Street because they think it is credible that he’ll do what they say. Yay!

  28. rebound commented on Sep 18

    Wow. Given the vote, it looks like everyone is really spooked. And given the BoE news across the pond, it seems like they are also frightened.

    I’m not surprised my call on them holding steady was incorrect. I am surprised at the magnitude of the dual cuts in rates.

    Where to do we go from here? Well, if re-flation is the path that is going to be tried, and we are unwinding a real estate bubble, it sounds like Stagflation is likely with a much lower dollar in the long term.

    It may also be that once the dollar goes to hell, in maybe 3-7 years the manufacturing sector will start up again in a big way.

    Am I going to have to get out some bell bottoms and review some charts from the seventies to get a leg up on trading?

  29. John F. commented on Sep 18

    Now that he’s wrecked the dollar, Greenspan’s money is now denominated in some unspecified basket of currencies. Few Americans have given the slightest thought to diversifying away from the greenback, or the slightest idea how to. This is the stuff of which revolutions should be made.

  30. Robert commented on Sep 18

    Ben, Ben, he’s our man, if he can’t do it… Well… The free market could have… But I’m glad I saw this coming from a mile away (and invested heavily in gold), due in no small part to Barry ~ Thanks!

  31. costa commented on Sep 18

    How does an avg investor get into Euros?

  32. commented on Sep 18

    Interest Rate LimboReactions To The Rate Cut

    You can’t fight the tape. Lehman comes out ahead of expectations and has a killer conference call. Bernanke & Co stomp down interest rates. Equities markets shoot for the moon. Wall Street’s economists have had mixed and contradictory reactions to…

  33. SPECTRE of Deflation commented on Sep 18

    Bernanke blinks and America gets hosed. When, not if, this thing blows in the future, it will be that much worse in an exponential way when the crash comes. Oh how I long for the days of Paul, Ron and Tip. That’s not a band for the youngsters.

  34. SPECTRE of Deflation commented on Sep 18

    How does an avg investor get into Euros?

    Posted by: costa | Sep 18, 2007 4:55:35 PM

    An ETF would be the easiest, but volume is thin. I do think that volume will now improve with the FED action of today. Everbank is another possibility if my memory serves me right.

  35. SD Scientist commented on Sep 18

    “Yield on the 10 year is now well below 4.50%.”

    Actually right now yield on the 10 year is 4.48%, which is ABOVE yesterday’s close.

    BTW, I’m starting to think that cutting rates was a good idea. American economy is addicted to consuming increasing quantities of foreign money (that’s what housing bubble was – lots and lots of foreign money flowing directly into the private sector). Cut rates, devalue the dollar, foreign money goes away, America goes through withdrawal and then recovers healthier than before.

  36. SD Scientist commented on Sep 18

    “Yield on the 10 year is now well below 4.50%.”

    Actually right now yield on the 10 year is 4.48%, which is ABOVE yesterday’s close.

    BTW, I’m starting to think that cutting rates was a good idea. American economy is addicted to consuming increasing quantities of foreign money (that’s what housing bubble was – lots and lots of foreign money flowing directly into the private sector). Cut rates, devalue the dollar, foreign money goes away, America goes through withdrawal and then recovers healthier than before.

  37. stormrunner commented on Sep 18

    If “Bernanke blinked” here I believe its likely because he sharted. Theres a discoloration to the taint here that your average trousers can’t conceal

  38. rebound commented on Sep 18


    Everbank does have some interesting products you might be interested in. There are a bunch of other ways, but this is just one.

    I’m not buying Euros myself. I think they will also have currency problems of their own. This is a global problem. I view the challenge here not so much to make money on such a move. I will consider myself fortunate if I am able to shield savings in boring investments.

  39. rebound commented on Sep 18

    Sorry SPECTRE of Deflation. I didn’t mean to steal your Everbank recommendation. Your reply came in when I was typing.

  40. sanjosie commented on Sep 18

    I guess Benji Boy Bernanke, lapdog to the investment banks, will be gifted with some revisionist economic history rehabilitating former Fed Chairman Arthur Burn’s reputation. Arthur and Benji Boy are now two of a kind. So, regrettably, the good work of former Fed Chairman Paul Volcker comes undone. Too bad for us.

  41. lauteus commented on Sep 18

    I keep hearing that the run-up commodities if from speculative money…(various “experts” on talk radio)

    and if the Euro goes to shite because “it’s globally contained”… Then what the hell do you buy to stay clear?

    My guess, I think I’ll start loading up on chickens, can I buy chickens? Any you guys know how many chickens the chinese and indians (dot not feather) are eating these days?

  42. LAWMAN commented on Sep 18

    Lauteus, I know you were just being silly, but, actually, you may want to load up on pork:

    The Sioux City John Morrell plant is recalling about 250 laid off employees as it increases production to fulfill a new trade deal in China.

    The move reverses cuts earlier this year that temporarily idled about 485 workers, or about a third of the workforce at the local plant. At the time, Morrell’s parent, Smithfield Foods, said it was shutting down the plant’s second shift because of unfavorable market conditions.

    In August, Smithfield announced a deal to sell 60 million pounds of pork to a major Chinese trading firm. “Although our agreement today is modest, we believe there could be additional purchases and we are hopeful that this is the beginning of a longer term and growing association,” Smithfield CEO Larry Pope said in a statement at the time.

    …of course, SFD fell 6% today…

  43. mhm commented on Sep 18

    “… Then what the hell do you buy to stay clear?”

    Spend it with yourself or someone you enjoy. Nobody will take your good memories away.

  44. rebound commented on Sep 18


    Now you are talking like a good old fashioned capitalist. We can’t have any of THAT! LOL!

    Well, how about borrowing the cheapest money you can find to buy a chicken farm. Pay back the loan with soon to be inflated dollars. Then export micro-wave ready chicken dinners to the rest of the world and profit.

    Wait. That isn’t going to work in our market economy. Instead, buy a dairy or cotton farm or some other commodity with price controls, price floors, or incentives not to grow. Then reap the rewards of the subsidies. This way we will be putting money directly into your pocket, as a tax payers, and you need not lose a wink of sleep whether or not you are buying into a viable business!

    You could also start a hedge fund and get bailed out. Or a car company. Or an airline. Or…

    Okay, enough sarcasm for now. I need a drink. What a day.

  45. PeterR commented on Sep 18


    I’ll drink to that!


  46. techy2468 commented on Sep 18

    looks like its a good plan to invest atleast 30-40% in equities (i am not a gold bug)

    but on other hand…how low can FED go if things get worse…..i dont think he has room below 4.0.

    and i wonder again how is europe/india/etc.. going to fight inflation with cheap money flowing all over from USA?

    i do feel sad that i am not a risk taken and prefer to stay in cash.

    it still does not make sense to me that cutting rate means lower risk in equities……i wonder how all the mark-to-model are going to manage their virtual assets…and how this low rate will help them??

  47. chris commented on Sep 18

    Wow! The Canadian Dollar is now worth 1.01 US.
    Good luck down there.

  48. tjofpa commented on Sep 18

    Cramer was Right! Thank God for Jim Cramer.

    And the Fed is his Personal Beach…

    I guess they’re no longer asleep.

  49. Estragon commented on Sep 18


    Canada didn’t do so well last time USD/CAD was at parity. Whatever the US is doing, it will suck Canada along for the ride.

    Anyone else remember when it wasn’t just a question of the price of gas, but if you could buy gas?

    This movie is starting to look familiar.

  50. tree commented on Sep 18

    If lower FFR is good for equities won’t people sell bonds , buy stocks, and force long term rates higher? That would be bad for housing. Unless this brings back the sub prime loans (ARMs, interest only etc..) then the cycle just repeats. It appears that Greenspan ruined the American economy.

  51. jrasp commented on Sep 18

    resistance became the floor today. On NYA, on SPX, on DJIA, on NDX, … 29:1 upside on the NYSE. Too many expecting a “sell the fact” scenario. Too many expecting 25bps cut. Not only can you not fight the Fed, but you can’t fight the greed to follow. The fourth turn is approaching and then the final straight (if it’s a race). Too many managers needing to hit some serious numbers to save the year. The scenario is now set for a furious 4q. Never get in the way of a manger’s bonus/income stream… Will it be straight up. Doubt it. l bet it will be violent in both directions with the primary trend up. But not before frustrating all of us with $$ to put to work…

  52. Estragon commented on Sep 18


    If history is any guide…

    The surprise rate cut in early Jan 2001 sent knees jerking sharply higher for a day or so, then back down. Indexes drifted a bit higher for a month or two, then began a sickening slide lasting nearly two years.

    They had bonuses back then too, but with the Asian currency thing still in focus, not a lot of alternatives. Just a thought ;-)

  53. johntron commented on Sep 18

    So will this rate cut be analogous to the first rate cut in Jan 2001? Stocks went falling after a 3% upside move on 1/3/01.

    I guess we’ll see by Friday.

  54. Jim commented on Sep 18

    It has been said before and you do not fight the FED. This market will top out probably around 15K this year and 16-17 range next year. Asset inflation is here in spades. No way this market sells off, hell it cannot even have a 10 percent correction anymore.

  55. km4 commented on Sep 18

    America is hooked on quick cheap fixes for just about everything i.e. drugs, entertainment, and now dollars…..this country is going to hell in a handbasket.

  56. bsneath commented on Sep 18


  57. Shrek commented on Sep 18

    We have built an entire economy based on contiuous asset inflation and credit growth. It really is inflate or die.

  58. donna commented on Sep 18

    You’ve got it guru. I feel like a damn fool for not buying that big ass house I couldn’t afford now!

    And my dollars are become worth less every day…


  59. CDizzle commented on Sep 18

    For all of you looking for a higher market, you might want to look at VOLUME today. Not saying you are wrong, but, did anyone notice that VOLUME was not compelling, to say the least? Compare today’s volume to the “shakeup” of last month. The big $ appears to be waiting for something more significant than Bernanke showing the strings attached to his various body parts to wade back in.

    Be careful out there, sports fans…

  60. jojo commented on Sep 18

    There was 25 times more volume flowing into stocks up on the day than down, and it’s clear that there was a huge scramble to get as long as possible.

    The last time we had a 25-to-1 up volume day was August 20, 1982, as equities were making their low before the huge bull market of the past 25 years. Since 1950, there have been a total of 7 days with such a skewed ratio.

  61. chris commented on Sep 18

    Estragon-I remember, dimly, I was just a kid.
    This is gonna be really hard on our rural economy here. The two biggest employers are Michelin Tire and the Bowater pulp mill. Oh, and the lobster fishery. And my neighbour who grows Christmas trees for New Yorkers. Could be a hard winter for some.
    Ben Dover Bernanke-I like it!

  62. ajw commented on Sep 18

    Costa – if you’re looking for more liquidity than the Everbank accounts (no knock on Everbank, they’re great) there’s also the Euro ETF, ticker FXE (or the Swiss Franc, FXF). There’s also the open-end Merk Hard Currency Fund (MERKX), which is essentially a non-USD money market fund with an 8% GLD position, though the expenses are a bit high.

  63. lurker commented on Sep 18

    I think tomorrow everyone starts to get scared. What does the Fed SEE!!!!! Oh my.
    No one mentioned Oil today but it’s on a moonshot. Thank goodness energy is ex-inflation and winter is on the way. Maybe I can heat my house with copies of Greenspan’s tome…that would be irony, no?

  64. Jay Weinstein commented on Sep 18

    Essentially, this reminds me of the old saw about owing the bank $1,000 vs owing them 10 million dollars.

    Wall Street is too big to let fail–or at least that is what the Fed and government fear. So they get to make tons of money in good times, and bailed out in bad. The rest of us just get caught in the riptides.

  65. Crush Da Bears commented on Sep 18

    Hey Eclectic,

    Do you wish me watching you eating a boiled crow?

    SPECTRE of Ignorance, you should eat a crow too.

  66. Strasser commented on Sep 18

    Barry…”The Fed now has a third problem to deal with: They have become Wall Street’s bitch”…

    … my husband is trying to wipe up some really nice wine from my computer screen.. and now that the laugh is over, this is pretty sad.

    Seems that only 18 days ago BB eloquently said, “It is not the responsibility of the Federal Reserve — nor would it be appropriate — to protect lenders and investors from the consequences of their financial decisions.”

    As my husband told one of our sons many years ago, “All you have is your word”.

  67. Crush Da Bears commented on Sep 18

    Re: Jim Rogers, Faber Say Fed Rate Cuts Will Spur a Recession

    Too funny!

    A few weeks back both clowns (Rogers and Faber) bragged on Bloomberg TV about them leveraging 1:25 and shorting US equities, and today they recommend to the Fed raising interest rates.


  68. Crush Da Bears commented on Sep 18

    Barry…”The Fed now has a third problem to deal with: They have become Wall Street’s bitch”…

    The Fed was not bailing out the hedge funds today. The Fed was punishing the hedge funds today for using 1:25 leverage to short US equities? (More than 50% of the hedge funds were short before the meeting)

  69. stormrunner commented on Sep 18


    Where do you see this going,

    Moderate market correction,
    Housing depreciation modest 15-20%
    short itchy recession,
    reinflation to new overall price level
    as opposed to 1 or 2 asset classes
    with wages lagging by 2 to 3%

    The next round of musical chairs where the chair pulled equates to another occupation class whose earnings are no longer sufficient to provide a middle class standard.

    Or is this an admission of bigger issues possably even preparations for expanding the front.

  70. SPECTRE of Deflation commented on Sep 18

    Sorry SPECTRE of Deflation. I didn’t mean to steal your Everbank recommendation. Your reply came in when I was typing.

    Posted by: rebound | Sep 18, 2007 5:09:42 PM

    We are all family here trying to figure out what the Hell to make of this mess. Any ideas are welcome! :>)!

  71. Moral Hazard commented on Sep 18

    With the leverage being deployed, a 10 percent correction would probably wipe out a lot of funds…

  72. ilsm commented on Sep 18

    Oil is speculative, going bubble.

    Maybe some other commodities as well.

    If those contracts sell someone pays a lot of money for gas.

    The word from UK this AM scared me.

    Their deposit insurance raised all their underwriting limits for North Rock’s “run”.

    The fed bought $25B in repros yesterday.

    There is about $47b in FDIC deposit insurance reserves, but it is in intragovernment debt accounts, so the cash was spent in Iraq.

    The fiscal mess is worse than the money mess.

    Soemthing scares me, the FOMC sees more than I see.

    So, the vast devaluation of the US debt begins, bail the fiscal mess out.

  73. touche commented on Sep 18

    Foreign stocks beat out US stocks today. In addition to benefiting from the Fed’s move, they also rose on currency.

  74. Stuart commented on Sep 18

    It’s as clear as day. A 50 bps cut with oil this high, gold this high, the dollar this low, means they are much more concerned about something behind the financial curtains tham they are letting on about.

  75. corky+mr clean=jeff macke commented on Sep 18

    hey where’s eclectic i wanna say tolkd you so: 50 BPS!!! oh right its those mysterious future buyers that don’t have to clear their trades so no one knows whos on the other end driving up the market, right right. i gotta thank the participants on this board, just take the the opposite side of the trade & you’re a guaranteed winner.

    what to do with my account now 5% larger after today, steepener looks good, carry trade, some emg mkts, see you 10% higher-

  76. Brian commented on Sep 18

    unless you ‘cashed out’ today you haven’t booked a dime. So I guess you are happy about being ‘right’. Opinions are nice but should never interfere with trading. Trade what you see, and dont get to ‘cocky’, Corky…

  77. Dean commented on Sep 18

    Ben Bernanke just got sorted to the house of Slythering (Slytherin House) by the sorting hat.

    “You spotted snakes with double tongue,
    Thorny hedgehogs, be not seen.
    Newts and blindworms, do no wrong,”
    William Shakespeare

  78. Eclectic commented on Sep 19


    I keep some in the freezer… But I made up a batch of Eclectic’s Special Rasberry Jubilee Sauce for the crow, so don’t feel too badly for me.

    It would probably be good on your Sweet Bear Sausages too… You could probably put together a good tail-gate party.

  79. rmcgee commented on Sep 19

    CDSizzle, in 1982 P/E of S&P 500 was under 8x when it had the 25 to 1 up volume day.

    TTM P/E (GAAP) on S&P500 now is 17x.

    All other examples cited had P/E’s of 11x or less.

  80. Estragon commented on Sep 19

    “When business in the United States underwent a mild contraction in 1927, the Federal Reserve created more paper reserves in the hope of forestalling any possible bank reserve shortage. More disastrous, however, was the Federal Reserve’s attempt to assist Great Britain who had been losing gold to us because the Bank of England refused to allow interest rates to rise when market forces dictated (it was politically unpalatable). The reasoning of the authorities involved was as follows: if the Federal Reserve pumped excessive paper reserves into American banks, interest rates in the United States would fall to a level comparable with those in Great Britain; this would act to stop Britain’s gold loss and avoid the political embarrassment of having to raise interest rates. The “Fed” succeeded; it stopped the gold loss, but it nearly destroyed the economies of the world, in the process. The excess credit which the Fed pumped into the economy spilled over into the stock market, triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed. Great Britain fared even worse, and rather than absorb the full consequences of her previous folly, she abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of confidence and inducing a world-wide series of bank failures. The world economies plunged into the Great Depression of the 1930’s.”

    Alan Greenspan in a 1966 article describing the role of fiat money in the assertion of “statist” objectives.

  81. halbhh commented on Sep 19

    Bernanke kept his clear eyes wide open, and is actively trying to put a cushion under our falling bodies. I doubt seriously he thinks he can avoid the downturn. He wants to avoid panic and destruction.

    Also, inflation in food and energy isn’t about US demand, and the rest of US inflation is.

    Bernanke’s showing a masterful hand so far trying to land a crippled plane.

  82. Rob commented on Sep 19

    First time poster, long-time lurker and fan o’ Barry.

    Remember in mid-August when Fed Officer Poole said that only “a calamity” could cause the Fed to cut rates? I think seeing the BBC reports outside of Northern Rock had more to do with this reckless cut than anything else. It was a pure panic move. What I want to know, and what hasn’t been asked is what ugly event is being hidden from us?

    Another point not being made is the impact this will have on the lower and middle classes in this country. When capital flight occurs, interest rates will spike, our debt will not be covered and inflation will go to the moon as the dollar collapses. There is no way the average middle class guy can keep up with this when prices at Wal-Mart go up 30% and prices at the pump and grocery store reach 1970s levels (at best). Inflation AND an environment where banks still won’t lend. The Wall Street crooks got bailed out and the middle class, savers, retirees and the poor get screwed again.

    This will blow up in BB’s face. And he deserves it, though the average citizen does not.

  83. mddwave commented on Sep 19

    Since China is the creditor nation of the world, what will they do now?

  84. VJ commented on Sep 19

    Having just gotten their latest fix, the rate-cut junkies are calling for more on October 31st.

    This is reminiscent of the tax rate cut advocates. It fixes everything.

  85. Jason Rasp commented on Sep 19


    I appreciate your comments on mine, and do not disagree that the scenario you describe from Jan 2001 could reoccur. However, the facts still remain that yesterday made resistance numbers into floors. Your risk is a bit more clearly defined today than it was yesterday. I didn’t say “all clear”, I am simply weighing what I see, the time of the year, the attitudes managers get when they’re behind, and all of this says that it is not prudent fight this market. Could that change in two or three months? Yes. But right now, the odds point in the upward direction. Enough so that if you are sitting on the sidelines it will be frustrating.

    This is the problem I have with bulls and with bears; the inability to change when the facts present the need to change. The market is dynamic. The bulls are overly optimistic and never can see the risks, and bears never understand that the rules of the game can be changed to produce an different outcome and become irate when it happens. Bulls often forget the basic tenents of econ101 and accounting. Bears seem to underestimate the power of psychology and behavior on the market in the short term. Everyone seems to hate chartists because if they are truly proficient, they can have a foot in both camps…

  86. VennData commented on Sep 19

    All those commentators who claimed the dollar would rise on a Fed cut – and there have been a lot of them – were obviously… wrong.

  87. Winston Munn commented on Sep 19


    I am fairly certain of only one thing – this money that the Fed is tossing onto the fire will not go where the Fed wants it to go when they want it to go there.

  88. lewis commented on Sep 19

    10 year 4.56 and CLIMBING.

    Banks gonna be squeezed…gotta lower the prime, etc, but with inflation (watch that gold and oil baby) about to soar (lets see, we have a trade deficit of $60 billion a month and all of that is gonna cost a lot more in Dollars), people are gonna want higher interest rates on their money as we all come to appreciate how little it is worth. This is about to get interesting and curious. Will capital inflow to the US shrivel up and die in the next few months????? Wonder if we can get a yield curve inversion where the 5 year cd rate is above the prime???? Would that be superstagflation?????

    Wall Street’s Bitch? In the immortal words of Marion Barry, I think “the bitch set us up”.

    I think those worrying about getting lower interest rates on their money have a short wait until that problem is solved and they get a whole brand new problem, real old fashioned, 1970s style inflation.

    We shall see. Will the Fed cut again before inflation stats start showing?

    I dunno…..but its more fun to watch now than the Philadelphia Eagles….


  89. 50 points commented on Sep 19

    My new single…It’s awful but true….

    “Spread em’ beyatcch!”

  90. Below The Crowd commented on Sep 19

    Brief Interest Rate Cut Notes

    Nice to come back just in time for a petty academic/bureaucrat with far too much power to do something stupid and self-serving and give me an opportunity to vent a lot of rage. I’m not the only one. Doug Kass…

  91. GrowYourFunds commented on Sep 20

    What about inflation pressures?

    There have been lots of cries around the investment world since yesterdays Fed rate cut about the inflationary pressures that are likely to be buoyed by the 50 basis point cut. A large amount of economists and strategists alike believe…

  92. Blissex commented on Sep 20

    It’s as clear as day. A 50 bps cut with oil this high, gold this high, the dollar this low, means they are much more concerned about something behind the financial curtains tham they are letting on about.

    What about watching on TV a massive run on the bank in England, where the subprime issue is much smaller? :-)

  93. Ames Tiedeman commented on Sep 21

    The dollar will continute to drop until the trade deficit goes back to at least under 2% of GDP. It is runing at a rate of 6% of GDP now. In reality no country should run a trade deficit of more than 1% of GDP for an extended period of time.
    Ideally the US should move to get the trade deficit well under 1% of GDP.
    I suspect this will happen over the next 2 decades…

  94. Ames Tiedeman commented on Sep 26

    Another new low against the Euro. I predict the Canadian Dollar is woth at least 10% more than the U.S. Dollar within 12 months..

  95. Ames Tiedeman commented on Oct 2

    In the U.S. interest rate are going lower, Gold is going higher, Oil is going higher, inflation is going higher, the dollar is going lower. What is wrong with this? Everything! At some point the FED is going to have to raise rates bigtime. We are in a very, very, precarious situation at the moment. I think Gold will tripple to over $2,000 an ounce when the market finally wakes up and sees the real inflation. Last I checked a lower dollar = higher import prices. There is no inflation deflator here. With commodities on fire you can forget about that. Bernanke should have never lowered rates last week. However, the Fed might be doing something that few have talked about. Maybe the Fed has abandoned the dollar to crush the trade deficit. Good luck, it will take 20 years to correct our 6% of GDP trade deficit and move it back to under 1% of GDP, unless you want to seriously disrupt the global economy. We are in for tough times people. Very tough! The FED will not be able to save housing with lower rates. We are in for a 10 year decline in home prices. It is called a cycle!

  96. Ames Tiedeman commented on Oct 4

    Why are the U.S. Governments statistics on inflation flat lies?

    When did the deception start?

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