Tuesday, October 28, 2008

Comment: US looks to ease credit

Many will say it's what caused the trouble in the first place, but easy credit has become the core of the American economic values system. So, the Federal Reserve is expected to make another cut in interest rates, a move which will eventually become available as the rate goes below 1 percent.

Now very good news for the smart people who have their money in FDIC-protected savings accounts, but these folk haven't had much say over the past few decades in what Washington does with the people's money.

Interestingly, with all the growth in money supply we have still seen the US dollar moving up and gold moving down, although this trend has reversed somewhat in the last few days. This appears to be going against the fundamentals, but a lot of people have an interest in propping the dollar up.

With the holiday season coming up, Asian exporters want the dollar high so they can sell their goods on the US market. Oil exporting countries also want the to prop up the dollar with oil prices having plunged so steeply. Both Asian and Middle Eastern countries are sitting on huge stashes of dollar reserves and dollar-based loans, so it makes sense that a good chunk of the money flowing out of the equities markets would go toward defending the dollar. Only the yen has been doing better among the major currencies.

The high dollar is of course bad news for US exporters who were not doing all that well even before the crisis began. Therefore we could see that trade deficit maintain its position or even expand in the coming months despite a general slowdown in the economy.

In other economic news, both consumer confidence and housing prices created new records today. Confidence plunged to an all-time low in October, while housing prices set a record yearly dive of 17.7 percent.


The Associated Press

Fed meets, with new rate cut expected
AFP - 2 hours ago
The US central bank, which led a coordinated global rate cut earlier this month that pushed its target rate down a half-point to 1.50 percent, ...
Tips for savers, as another Fed rate cut looms Los Angeles Times
Can a Fed rate cut make credit flow? Christian Science Monitor

Fed heads toward uncharted territory CNNMoney.com

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