Earlier today, Hong Kong time, there was a coordinated response from the US Federal Reserve, Bank Of Canada, Bank of England, European Central Bank and the Riksbank of Sweden to cut interest rates by 50 basis points. All banks issued public statements in similar form, pointing out the need to take action in a slowing global economy.
Would it be impertinent to point out that interest rates are already low, have been for sometime and still the US economy, the European economies and the Asian economies are slowing or are expected to slow?
Is SAW missing something? How do lowered interest rates deal with the 2 fundamental issues of institutional decapitalization and deleveraging?
And if the problem is one of outrageous consumer debt and shoddy bank lending, are lowered interest rates going to make the banks thrilled to lend again to consumers who turned out to be lousy credit risks?
Not likely.
One of the widely read blogs, Mish’s Global Economic Trend Analysis, asserts in a posting, Global Coordinated Rate Cuts Won’t Solve Economic Crisis dated 8 October 200,8 that the root cause of this crisis is fractional reserve lending. Interesting……SAW is no economist just a simple lawyer, who in his previous post entitled What Crisis dated 1 October 2008 suspected the same thing.
As MIsh put it:
“The world is heading for a global recession and a sure bet is that it will be blamed on a subprime crisis in the US. The reality is the greatest liquidity experiment in history is now crashing to earth.
Would it be impertinent to point out that interest rates are already low, have been for sometime and still the US economy, the European economies and the Asian economies are slowing or are expected to slow?
Is SAW missing something? How do lowered interest rates deal with the 2 fundamental issues of institutional decapitalization and deleveraging?
And if the problem is one of outrageous consumer debt and shoddy bank lending, are lowered interest rates going to make the banks thrilled to lend again to consumers who turned out to be lousy credit risks?
Not likely.
One of the widely read blogs, Mish’s Global Economic Trend Analysis, asserts in a posting, Global Coordinated Rate Cuts Won’t Solve Economic Crisis dated 8 October 200,8 that the root cause of this crisis is fractional reserve lending. Interesting……SAW is no economist just a simple lawyer, who in his previous post entitled What Crisis dated 1 October 2008 suspected the same thing.
As MIsh put it:
“The world is heading for a global recession and a sure bet is that it will be blamed on a subprime crisis in the US. The reality is the greatest liquidity experiment in history is now crashing to earth.
The root cause of this crisis is fractional reserve lending, and micromanagement of interest rates by the Fed in particular and Central Banks in general. The Fed started the party by slashing interest rates to 1%, but Central Banks everywhere drank the same punch to varying degrees.
The Greenspan Fed lowering interest rates to 1% fueled the initial boom, but like an addict on heroin, the same dose a second time will not have the same effect. The Fed, the ECB, etc. could have slashed rates to 0% today and it would not have mattered one bit.
The reason is simple: There is no reason for banks to go on a lending spree with consumers tossing in the towel, unemployment rising, and rampant overcapacity everywhere one looks with the exception of the energy sector.”
© 2008 Sanjeev Aaron Williams All Rights Reserved
© 2008 Sanjeev Aaron Williams All Rights Reserved
No comments:
Post a Comment