Fed’s Interest Rate Cut Could Lead US into Recession

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“It’s Tuesday, isn’t it? Isn’t Bernanke supposed to cut rates today? And isn’t the stock market going up in anticipation? Aren’t investors sure that the zoo keepers will always protect the animals and keep them happy?”

Yes to all of the above.

But to each question you could give a much longer answer…with plenty of nuances.

To the simple question: “What day is this?” for example. The answer depends on where you are.

“It’s Tuesday morning, mate,” said an Australian colleague.

“What day is it in America?”

“It’s a day earlier…it’s Monday; we’re about 12 hours ahead.”

“How could it be different days in different places? Isn’t time universal? Doesn’t it actually have to be the same moment everywhere at the same time?”

“No, no…it depends on where you are. Here, our workday will be over…it will be the next day…just as it is just beginning in America.”

We’ve always yearned for the ability to read tomorrow’s newspapers today. Here in the antipodes, we can finally do it. We picked up the paper this morning – and read Tuesday’s news – while it was still Monday (at least in the USA.).

What do we find? “Sub-prime fallout sinks US$12 billion deals,” says the local paper.

We turn to our friends at The 5 Min. Forecast for their opinion on today’s Fed decision…

“38% of the economists in the US agree with The 5 Min. Forecast …at least, according to a poll the Wall Street Journal published this morning.

“The poll says 38 out of 100 economists think the US economy will be in recession in 2008. That number is up 5% from last
month’s poll. The same group of economic thinkers also drastically lowered their GDP forecast for this final quarter of 2007, from an annualised 1.6% down to 0.9%.

“Of the economists surveyed, 96% think the Fed will cut rates today. Most say 25 points. The Fed makes their announcement at 2:15 this afternoon (EST). We’ll fill you in on the fallout from their decision tomorrow.

“But to fulfill our namesake: the Fed will cut 25 points, the market will rally briefly then stall, the dollar will sell off slightly. For the most part, this rate cut is already baked into price levels…”

Bill Bonner
The Daily Reckoning Australia

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Bill Bonner

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Comments

  1. What I think a lot of people don’t know is that a depression is simply a recession that goes for a long time. When the masses hear “We are heading for a recession”, they think “oh yeah, big whoop” But I wonder if they would react the same way if they heard “We are heading for a depression: I wonder if that would make them sit up and take notice. Or if they heard the real truth put real truthfully: “We are headed for the biggest depression in the history of mankind that will make the 1930’s depression seem like a picnic”. Would that make them sit up and take notice? Naahh, I doubt it. They would probably just go shopping

    Reply

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