CRA Did Not Cause Financial Crisis - Fed

You can't reason with Zoomie. In one breath he says government serves no purpose, and in another breath he chastizes libertarians. As if that even makes any sense. Not to mention, he publicly supports abolishing the nation-state.

Government has a role, but it is primarily limited to National Defense, maintaining law and order, and little else. No government has EVER had a great deal of control over the economy. The US and the Global economy is far too large for any government to have anything more than a MARGINAL impact on the periphery. It's like trying to steer a supertanker with PT boat rudder.

And yes, we are evolving as a global society to the point where the nation-state gets in the way of progress far more than it assists in anything useful. The nation-state has outlived it's purpose and eventually, within the next 100-200 years will cease to exist.

We would have asset bubbles without a federal reserve. Interest rates would fluctuate and we would have periods of cheap money creating asset bubbles without any interference at all from a government bank.

The economy is a psychological human phenomena more than anything else. About the only economic indicator I pay any attention to is the one that attempts to quantify the public psychology....consumer confidence. And my general disposition is usually inversely proportional to that. When it's low I start getting very confident and when it's high I start to get skeptical and cautious.

Journalist Alexis Xydias wrote for Bloomberg News 17 December 2008:
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U.S. stock-index futures declined, indicating the Standard & Poor’s 500 Index will retreat from a five-week high, on concern that the Federal Reserve has few tools left to combat the deepening recession.
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Hardly unpredictable! The banks can loan money to each other all they want, and they still won't affect the "deepening recession" until Joe down the street becomes employed again, and can borrow money to obtain a house, a car, or home furnishings again. More people are losing their jobs than are becoming employed. Congress can force banks to loan money to the unemployed through legislation, but that is what has already exacerbated our predicament: loaning money to those who could not pay it back.

Do you really think there'd be a time when interest rates would get as low as 1% for interbank loans in a free market situation? Or 0-.25% like it is NOW?

I don't. I doubt we'd ever see credit that cheap. Even if we did, I'd feel a lot better knowing the market decided it, instead of some government quasi-entity DECIDING it was the so-called "best solution to fix the economy".

I also doubt that even if the market determined a rate of 1%, that it would stay there as long as the Fed would keep it there otherwise.

This is correct. However, we do not live in a world without a central bank. We have one, and it is the transmission mechanism for the creation of money in the economy. What it does has an enormous effect on the economy because it effects the supply and demand for credit.

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It has had virtually NO effect for quite some time, because the basic psychology of the marketplace is completely inundating and overwhelming anything the Fed does.

Same thing happen during booms. Every effort by the Fed to slow growth down during these bubble creations is mostly ignored.

The markets decide FOR THEMSELVES when to react. The only thing the Fed actions affect is they make those reactions much more EXTREME than they otherwise would be.

If you don't think all these new lending facilities the Fed has invented the past 2 years will have no effect on the economy, you're insane.

Besides that, they control the money supply and the movement of credit markets. How you could POSSIBLY think that has no effect on an economy is simply BEYOND me.

Yeah, when they raise rates back up during a low rate boom period it has no effect on the economy at all

You live in a fantasy world, Zoomie.

Zero, zip, nada. NO impact whatsoever. And we continue to completely IGNORE Fed action.

I work for an investment organization that is responsible for more zeros than one has fingers. I can tell you unequivocally that what the Fed does effects how we allocate capital in the credit markets. I can also say that every single trading desk we talk to on the credit side also takes into account Fed actions.

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Still has no effect at all on main street. The moves by the Fed are having virtually NO impact, whatsoever, on overall credit markets, housing, or employment out in the "real" world. And they have not since day one, nor will they.

Given that the Fed keeps dropping interest rates with no apparent change in bank lending you could be right.

It doesn't mean it's not going to work, for what they want it to work for.

Banks are hoarding and playing with the money right now because it's too risky to loan to EVERYONE, since times aren't exactly grand. Outside of the government FORCING banks to lend, these recent Fed actions will take time before they affect the market.

All that money is going to hit the streets eventually. Maybe not even in 2009, but it WILL. When it happens, the inflation and inevitable bubble(s) that occur will prove that the Fed's actions DO affect the economy.

Zoomie's looking for some kind of immediate affect as though ANYONE could literally control the economy on demand. It all takes time, Rav.

Of course it does. Institutions buy and sell mortgages, bonds, asset backed securities, etc. If institutions are buying mortgages, the mortgage rate goes down and the mortgage rate people pay falls. If institutions are selling corporate bonds, interest rates to fund economic expansion rises, which means the cost of doing business rises and fewer people are hired. If institutions are selling asset backed securities, the interest rates on credit cards go up, which takes money out of peoples' pockets.

To assume otherwise is to assume that supply and demand does not work. If supply and demand does not work, the free market is a failure and all prices should be set by the government.

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What is occurring is called a "liquidity trap."

Liquidity trap - Wikipedia, the free encyclopedia

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