These guys are really changing directions with their fiscal policies right now. This move surprised a lot of people. What's the best thing that could happen due to this move, what's the worst?
2007-09-19 15:19:46 · 3 answers · asked by GoldFever 4 in Social Science ➔ Economics
LD - I personally think that the central bank is rewarding speculators and Wall Street banksters with this move.
The Dow loved this new liquidity, but the dollar's value was hurt as this is an inflationary tactic. We have oil above $80 pb and gold above $720 per ounce, yet the Fed sees fit to pour more gas on the fire.
The best thing that could happen would be that this move will ramp the equity markets into the holiday season where increased sales would take over and provide earnings for the retail sector.
The worst thing would be that China takes offense at the devaluation of the $800 billion in dollar denominated assets that they hold, and start to sell US treasuries into the market. Interest rates would rise quickly and our economy would grind to a halt.
You're right about this not helping mortgage rates. Long term rates actually rose due to the inflationary reaction of more liquidity.
2007-09-19 19:02:34 · update #1
personally, I can't figure it out....
WHY??
because any drop in the fed rate will NOT change the fact that the ARM's will STILL rise to the max next year. This won't help the homeowner at all.
The ARMS are not tied to a rate. they are tied to WHEN the mortgage company can change the rate. They can raise it to the max. What do you think they will do???
LD
2007-09-19 15:29:23 · answer #1 · answered by Anonymous · 0⤊ 0⤋
If Fed's analysis is correct, and the economy is slowing down so the rate drop will not be inflationary, it is a good thing. Unfortunately the real economy is vulnerable to over risky behavior that financial market players indulge in, so the best result for everyone is to bail them out. However it adds insult to injury when we also reward them with tax's breaks on the excess gains they get as a "risk premium".
2007-09-20 03:57:32 · answer #2 · answered by meg 7 · 0⤊ 0⤋
the primary purpose of the fed isn't to help the mortgage industry.
2007-09-19 16:03:45 · answer #3 · answered by sarahbird 1 · 0⤊ 0⤋