rickair7777

You kow what they say about broken clocks.

Actually it's a good tactic for the media...if they get lucky and guess right, they can run an "I told you so" special. If they guess wrong, nobody remembers...what do they have to lose, their integrity?

JetPiedmont

Here is a senario that is being put forth by the depression crowd:

The rate cuts by the Fed have eased the credit crunch and fueled the recent stock market speculation (rally), coinsiding with an already hot commodities market.The future result will be an even hotter commodities market and resulting soaring inflation when the liquidity from the rate cuts hits the economy in about another 6-12 months. The inflation will act as a brake on the economy, and the result will be like the stagflation senario we experienced in the late seventies/early eighties.

The resulting inflation rate (roughly 10-15%) will be unacceptable to the Fed, and a series of rate hikes will ensue. With the economy already stagnating it will, under the pressure of the rate hikes, dip first into a recession and then as the cuts progress, a depression. With inflation rates that high the currency will be threatened with debasement due to its already weakened state, fueling the urgency of the Fed to hike rates even more.

EAHINC

As of today, I doubt we will experience a 'depression' as we have not even technically reached a recession. Election year economies have generally been pretty weak and I believe this is not helping investors out right now.

This situation will eventually pass without getting much worse and the economy will start picking up. Once the dust starts to settle and investors calm down and come back to earth/reality I think we can expect a more sound growth economy as long as rates don't continue a downward trend.

I think it can be argued that the Federal Reserve is largely responsible for the liquidity problems that appeared last summer as they are more concerned with appeasing Wall St. Free markets should regulate interest rates (market rates of interest) rather than the Federal Reserve. I think that would help elimate 'human error'.

Dictating rates automatically removes an economy from being free market and is very hard to 'time' correctly leading to the the whole economic/currency system being out of whack and debased by a bunch of academics.

EAHINC

cfii2007

But if the economy was strong right now, what "crisis" could each presidential candidate promise to fix????

JetPiedmont

Actually, strong economies favor incumbant parties, so they generally try to keep things strong. The subprime meltdown came at a very bad time for the White House, and that as much as anything propelled the Bush appointed Fed into action with all the rate cuts and new access windows. The stimulus packages and mortgage buy out proposals are all vote procurement gimmicks passed by the incumbants as well.

EAHINC

Yes, good point.

EAHINC

EAHINC

Yes JP, Its an election year gimmick but I do think the $600.00 stimulus package is a good idea ONLY because its the peoples money in the first place, not Washingtons.

EAHINC

StraightShooter

Its actually the Chinese money....its all on a loan.