Here is today’s “Greggited” news story concerning the Fed cutting a key interest rate in a vain attempt to put the brakes on our descent into the next great depression. The original story was published on FOXNews’ FOXBusiness site, which you can read by clicking this link:
FOMC Slices Key Interest Rate by 0.75%; Fed Funds Rate Now 2.25%
The Federal Reserve on Tuesday continued its illusion of efforts to ward off a recession or worse by slashing three-quarters of a point off a key interest rate.
The move clearly reflects the Fed’s belief that it needs to do all it can to help alleviate fears that the economy has fallen and can’t get up, as well as it’s own delusion that it has the ability to do so at this point.
Prior to the announcement, economists and Wall Street traders were in disagreement over the size of the Fed’s move. But few believed the Fed would swerve from its aggressive approach toward righting the recent economic downturn. In other words, it was a bunch of yap with no substance.
“Fed officials are in full crisis mode and are striving to appear to be preventing a collapse,†said Maury N. Harris, chief economist at UBS.
Members of the Federal Open Market Committee, led by Fed Chairman Ben Bernanke, voted 8 to 2 in favor of the cut. In a statement released after the move was announced, the committee reasoned that the “outlook for economic activity has become unbelievably shitty.”
“Growth in consumer spending has slowed and labor markets have softened. Financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters,” the members added. “In other words, we’re fucked.â€
Still, inflation was on the minds of the committee — a concern that may have prevented a full point cut, which had been expected by many on Wall Street whose pants are already packed full of feces.
The 75 basis point cut will translate immediately into lower rates for consumers and businesses as banks cut their prime lending rate by a similar amount and the value of the U.S. dollar plummets to that equal to bathroom tissue (used).
Interest rate cuts are designed to prompt spending and push a stagnant economy toward growth, or at least to create the illusion that the Fed is capable of saving this sinking ship which is our economy.
“We’re in the middle of the worst part of the recession,†said John Silvia, chief economist for Wachovia. “It’s all downhill from here as we spiral into a depression.â€
The federal funds rate, the interest that banks charge each other on overnight loans, now stands at 2.25%, down from 4.25% at the beginning of the year.
That was before global market turmoil in January prompted an emergency three-quarter-point cut on Jan. 22 and a half-point move eight days later, the biggest reductions in a single month in more than a quarter-century. Likewise, we have the worst president setting the economic agenda that we’ve had in the past two and a half centuries.
Financial markets have see-sawed in recent days, jarred by the collapse of Bear Stearns Cos. (BSC: 6.42, +1.61, +33.47%), the nation’s fifth largest investment house, which was undone primarily by greed.
Good news came in the form of JPMorgan Chase & Co. (JPM: 41.94, +1.63, +4.04%) decision to purchasing Bear Stearns at a fire-sale (aka: vulture) price on Sunday in a deal helped along with a pledge that the Fed would supply a $30 billion line of credit to back up Bear Stearns’ assets. They have offered nothing to back up Greggity’s assets.
That offer over the weekend was the latest move by a central bank that has been pulling out all of the stops, including using Depression-era procedures, to pump cash into the financial system, much like a man flailing his arms wildly as he plummets 1,000 feet to his death. The flailing of the arms does nothing, but he can’t help but flail.
“There is no reason for the Fed not to be aggressive,” Mark Zandi, chief economist at Moody’s Economy.com told the Associated Press. “The economy is in a recession, the financial system is in disarray and inflation is low. Also, they already have all the money.”
In other moves, the Fed last week announced that it would lend up to $200 billion of Treasury securities that it owns to investment banks starting March 27 for a period of up to 28 days in return for a like amount of the investment banks’ shunned mortgage-backed securities. The Fed also announced recently that it was boosting the size of special loans it has been making since December to commercial banks.
There are plenty of reasons to think they will not live up to this offer, but the psychological impact on the markets and consumers is what’s important here.
“I don’t know where the floor is and I don’t think the Fed knows either,†said Stuart Hoffman, chief economist with PNC Financial Services Group. “In fact, I’m so drunk right now I just pissed and shat myself.â€