Tuesday, 18 September 2007

The Fed Cut Rates by 50 basis points - but will it make any difference?

The problem of 20 trillion dollars in the paper market for CDOs remains. It's a short term fix to make Wall Street happy. The Dollar is in freefall.

British banks rebounded today after the Government's desperate action last night. Again, this will make little difference. The short term, medium term and long term outcome will remain the same - a catastrophic recession, better termed as a depression.

Here's James Sinclair on the Fed's announcement of 2.15.

Posted On: Tuesday, September 18, 2007, 2:17:00 PM EST

Fed Actions A Bandaid On A Gaping Economic Wound

Author: Jim Sinclair

Dear CIGAs,

I doubt trying to goose the equity market via Fed action (that is all they have done) to return equities to a more positive wealth effect perspective will do much to improve anything but the equity market.

There is no doubt the Formula (Click here to view the Formula) is moving perfectly into place. Short rates could be hammered to zero as the credit and default derivative problem unwraps. The attempt is to make equity investors very happy, hoping that will transmit into other markets and eventually making lenders more confident of borrowers whose collateral is heavily weighted with credit and default over the counter derivatives

The Euro/Dollar is now 1.3954 and that will look low in time. Gold will stay locked into its inverse relationship with the dollar. Gold is therefore headed higher as I can see a lower dollar.

Nothing that has been done will correct or even move to correct the economic problems, particularly housing, because the real problem is a trembling $20 trillion mountain of over the counter credit and default derivatives.

Think deeply about the Weimar Republic case study because every day it looks more and more like a repeat in cause and effect, but with much lower amplitude.

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I teach Film, Media and English Lit.