The Fed Rate Cut and kool-aid.
Wednesday October 08, 2008
The 'emergency' Fed Rate Cut of .50, which brings their rate down to 1.50 is still too little too late. I had been lobbying one of the head researchers at the Fed to bring the rate to zero for at least a year, and probably years longer. (All my emails are lost, so I can't revisit our correspondence.)
While everybody looks to the Fed to 'fix it' and they themselves think they have the power to do so, the reality is that they have a VERY limited role in the economy. For the most part, like today, all they can do is respond to changes. The only thing they can do pro-actively is lock the rate at zero, and leave it there for a million years.
When Japan came off of their zero rate a few years ago, it pretty much set the stage for a screwy global economy. This volatility in Asia was followed by China unlinking their currency from the dollar. Big trouble was guaranteed. And, of course, the creation of the Euro has also contributed a lot to the new economic instability. All these versions of paper money and false value had to collide at some point, since each one was a bone-headed attempt to solve a problem by making it worse. Let's just say that all researchers at all the central banks are all drinking from the same fountain of kool-aid.
Meanwhile, Iceland is on the brink of bankruptcy, has nationalized its banks, and is waiting for an 'infusion' of 'cash' from Russia. What a crazy merry-go-round over meaningless pieces of paper! Why will the Russian paper be better than the Icelandic paper? The Russian paper will de-value just as the other currencies have.
The entire cycle is a farce, but what it does show is how important trade is for EVERY nation. We all must trade to survive. Everybody needs the Earth's natural resources, and any one country does not have enough. Trade, afterall, has existed for thousands of years. I think God was pretty smart to spread things around the globe. It forces us to cooperate with one another, eventually. Now if we could just get people to admit that the existing system is a dismal mathematical and historical failure, then we could try something new, that has a higher probability of working.
While everybody looks to the Fed to 'fix it' and they themselves think they have the power to do so, the reality is that they have a VERY limited role in the economy. For the most part, like today, all they can do is respond to changes. The only thing they can do pro-actively is lock the rate at zero, and leave it there for a million years.
When Japan came off of their zero rate a few years ago, it pretty much set the stage for a screwy global economy. This volatility in Asia was followed by China unlinking their currency from the dollar. Big trouble was guaranteed. And, of course, the creation of the Euro has also contributed a lot to the new economic instability. All these versions of paper money and false value had to collide at some point, since each one was a bone-headed attempt to solve a problem by making it worse. Let's just say that all researchers at all the central banks are all drinking from the same fountain of kool-aid.
Meanwhile, Iceland is on the brink of bankruptcy, has nationalized its banks, and is waiting for an 'infusion' of 'cash' from Russia. What a crazy merry-go-round over meaningless pieces of paper! Why will the Russian paper be better than the Icelandic paper? The Russian paper will de-value just as the other currencies have.
The entire cycle is a farce, but what it does show is how important trade is for EVERY nation. We all must trade to survive. Everybody needs the Earth's natural resources, and any one country does not have enough. Trade, afterall, has existed for thousands of years. I think God was pretty smart to spread things around the globe. It forces us to cooperate with one another, eventually. Now if we could just get people to admit that the existing system is a dismal mathematical and historical failure, then we could try something new, that has a higher probability of working.
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