World-Wide Cuts

Governments across the world have begun cutting interest rates today. Apparently the fed is down to 1.5%. There are a couple issues with this.

One, is that it didn't do anything for anyone except Asia. Europe and the United States continued to have their stock markets drop, even though the both the US and England have pledged some money ($700 billion -us $250 billion -uk) to save these banks from falling (all 3 of them ).

The other problem, is that even though lowering rates helped Asia stabilize their stock markets, I think it was more due to the fact that they lowered the %'s for reserve requirements to allow more money to lend. Those ratios were there for a reason. If Asia's banks are going under because of predatory lending as well, allowing them to lend even more of their reserve cash isn't going to help the issue in the long run. I can see that blowing up within 5-10 years...

Yet another problem is that the rates may be going too low. Japan had experienced this before (I don't know the details and I'm not sure how long ago it was, but I think it was over the past 50 years)... No one was borrowing any money, so Japan lowered their bank to bank lending rates as low as 0% and people still weren't borrowing. The reason was because if they borrowed money, the rate had no where to go but up when they were already stuck in a loan.

My problem: the stock market should not be used as a reflection of a countries financial situation. The stock market is purely based on consumer and investor behavior and what they think about the economy, not where it actually is. Even if the stock of a company goes down, that company doesn't loose any money from it. The company only gets money from stocks when they first sell it. Afterwards, they don't see it's effects ever again. The fact that all these countries around the world are dumping so much money into markets to decrease consumer skepticism isn't going to do anything. It's not fixing the issue. People buying more stocks in the banks isn't going to give the banks any money. It will change their worth... but that's it. No cash. On top of that... the constant flow of money suddenly being thrown at these private businesses isn't working.

I'm liking Iceland right now. They nationalized the bank that was going to go under, they just took control of it instead of "bailing" it out. We'll see what happens.... like... oh, I don't know... nothing?

http://www.washingtonpost.com/wp-dyn/content/article/2008/10/09/AR2008100900524.html

http://www.timesonline.co.uk/tol/news/uk/article4906578.ece

http://www.nytimes.com/2008/10/09/business/09fed.html?_r=1&adxnnl=1&pagewanted=2&adxnnlx=1223600704-lNAC0hXj+yauhy0S1CyF6A