Centerfield

Increasing the base money supply with cash infusions can and does have a positive effect, but it's usually somewhat like taking aspirin for your cold. It eases the symptoms but nothing cures the underlying condition but time.

Of course, giving away money to voters does seem to be the preferred solution to all economic ills during election season. :^D

OTOH, the media is grossly exaggerating the seriousness of the situation, and in doing so, actively making it worse.

Making the cost of capital for investment cheaper seems like it would have to have some sort of positive effect too.

Leaving aside a "stimulus package," I'm wondering more about this fed rate slash, .75 pts, which is substantial, and surprising as an emergency cut. How much further can this go? It's almost down to 3, which is awful low.

Cuting rates seems like it has been the magic bullet for every economic ill we've had, so long as inflation has been in check. But when we're down this low, we're almost out of such bullets, right?

Tully, what sort of problems are there for us when we're handing out dough at such low interest rates while Europe is charging a much higher premium? How will that effect exchange rates?

Everyone wants simple answers, but the problem is that the answers conflict and everything affects everything else.

Low (relative) interest rates put downward pressure on the dollar, but the cheaper dollar drives overseas investment flows into US assets and away from high-interest markets. We get more capital and liquidity, they start to choke. The overseas fall over the weekend was primarily due to foreign markets equalizing to ours. You might have noticed that the S&P 500 (a MUCH better market masure than the DOW) is off 20% in the last three months--and it was time for everyone to catch up to us. We've already pretty much soaked up the long-term expected damages of the sub-prime and housing crunches in our stock markets. It's been factored into prices.

As usual, corporations will use the excuse to squeeze out bad assets and such that they've been hiding on the books. And politicians will use the excuse to find ways to sway voters and look important. In truth the correction will run its course pretty much regardless of what they do, and any "stimulus" plan is mostly just injecting some needed liquidity into the domestic markets after a couple years of tightening, along with a big element of vote-pandering. Something foreign capital flows were already doing--much of the fall overseas was foreign players shifting funds into US assets to take advantage of cheap stocks here.

It is of course to the benefit of politicians and corporations (especially financial coporations with heavy sub-prime exposure) to use the occasion to "re-position." So they feed the panic. FWIW, unless you plan on retiring tomorrow, it's pointless to panic and it's stupid to attempt market-timing in general. Buy & hold dollar-cost averaging and not trying to play swings is still the path to doing well in the long run. Not that it doesn't look like a decent buying opportunity in US stocks right now. It does.

It bears mentioning that much of the panic is directly related to the unsettled nature of the elections and the Dem's oft-repeated desire to boost taxes if they get into control of all three branches, by letting the Bush-eera tax cuts expire. Anyone who doesn't think that adversely affects the markets is an idiot.

A great percentage of everything the government does serves no real purpose other than making it look like the government is doing something. Just look at the TSA...

the media is grossly exaggerating the seriousness of the situation, and in doing so, actively making it worse.

...yep. No question. The amount of money involved in the subprime crisis was pretty small. But then everybody was scared of touching real estate by inflammatory articles.

Don't even get me started on media behavior in the 2001 crash.

As we stare into the face of recession, perhaps the time is ripe for re-evalutating our corporate tax policies. If we could cut the effective rate to all businesses, we just might make small and mid-sized businesses more globally competitive and able to stimulate new jobs and consumer spending.

Link: www.hopestreetgroup.org

I personally feel that the package and interest rate cuts by the Fed are the wrong thing to do. I think the Fed should be more concerned about the weak dollar and boosting interest rates.

I have felt for quite some time that the ever increasing level of personal debt was putting the economy in a very perilous position. The creep in non-core inflation with food and fuel costs over the last year have been a thousand cuts to consumer spending. (In spite of what many economist and talking heads think, I think that $3/gallon gas is about the upper limit for this economy to handle under the current dynamics) The subprimes were the canary in the mine. These were the first people who felt the pressure and could not make payments. I fully expect this to move up the ladder into the standard loan market as they are forced to cut back because the home equity money pipeline has been cut off. If inflation is allowed to grow, this is the next group that could be finding itself in default.

The Fed must stop taking this reactionary measure to the market and be more concerned about trying to do what little bit it can do to prop up the dollar and reduce inflation. I am much more worried about the effect of stagflation if the Fed continues dropping rates than any economic slowdown that may occur if non-core inflation is not controlled. One of the best controls on oil prices is a recession.

Since this is a debt driven slowdown, a stimulus package may just be spitting in the wind. A vast majority of the money will go to debt retirement that will not do much at all to stimulate the economy. Worst case scenario is that it only puts off a deeper collapse until later.