Is the Fed out of bullets? I wonder:
"When an asset like real estate becomes overvalued, even if you drop interest rates to zero, you can’t force consumers to borrow more, because they’ve already borrowed too much. Nor can you force lenders to lend, because they’re already puking on ‘bad paper.’ It’s called a liquidity trap."
Even more proof ? Consider this article, variations of which have been in the media the past few days: Fed Interest-Rate Cuts Fail to Lower Borrowing Costs:
"The Federal Reserve’s interest-rate
cuts last month have failed to lower borrowing costs for many
companies and households, increasing the chance of further
reductions from the central bank.
Companies are paying more to borrow now than before the Fed
reduced its benchmark rate by 1.25 percentage point over nine
days in January, based on data compiled by Merrill Lynch & Co.
Rates on so-called jumbo mortgages, those above $417,000, have
increased in the past month, making it tougher to sell
properties and risking further price declines."
Bill King noted a similar story on ABC News:
"[Monday] night, the lead story on ABC evening news (World News) was ‘though the Fed has cut interest rates sharply in recent weeks, banks and credit card companies are hiking rates on consumers.’
Chase, Bank One and Bank of American were cited. The ABC News reporter said banks are hiking consumer interest rates and fees to cover losses on their crappy paper.
Yes, it’s that blatant and transparent.
Lovely. We get all of the wonderful inflationary effects of rate cuts — but none of the economic benefits.
Can you say "The Fed is pushing on a string?"
(Very good children. I knew you could)
Housing mess too big for a quick fix
Contrarian Chronicles2/11/2008 12:01 AM ET
Fed Interest-Rate Cuts Fail to Lower Borrowing Costs
Bloomberg, Feb. 13, 2008