Friday, October 24, 2008

Will Fed cut to 0% next week

If we are going into a deep recession and inflation is not a problem particularly with dollar rallying, why not cut to 0%. Till asset prices stabilize, there is no bottom to this mess.

This is deflation. And we now see the terrifying impact of it.

Sep and Oct have lived up to their reputation of being the worst months of the year. Will Nov and Dec now live up to their reputation of being better. You never know. Nothing ever goes down in a straight line, even though there is a lot of pain left. The giant Ponzi scheme of ever increasing asset prices has blown up spectacularly.


Roshan said...

I would say take the rate to 7-8% which is when the owners of capital will recognize that they are getting fair returns for their money and capital will return to the States. It will kill the guys with no money management skills and wipe out a few people swiftly but lets just get it over and done with and move on with a healthy economy.

Gaurav said...

That was what Fed did in 1929, unfortunately the small hole became an even bigger hole. Once we go into negative feedback loop and deflation, it might not right itself back automatically. Capital is anyway going back to the States - look at the dollar.