-->As expected, the US Federal Reserve lowered interest rates to 4.5 per cent on Wednesday. But the Fed then
pulled a surprise, stressing that with America's inflation risk"on the upside", rates wouldn't be lowered
again.
Having slashed borrowing costs twice in the wake of this summer's sub-prime debacle - a 50 basis point
reduction in September, and last week's 25 point cut - the Fed was trying to regain its composure.
Having bailed out Wall Street to the tune of tens of billions of dollars - again - the Fed wanted to rebuild
the façade of independent central banking. But no one was convinced. Of course the Fed will cut rates
again.
After all, almost daily now, ever more sub-prime poison is seeping out of the woodwork. Leading US
banks are now enduring absolutely massive write-downs.
Merrill Lynch's has made the jaw-dropping admission it's shouldering $8bn (£3.8bn) of sub-prime
losses. The mighty Citigroup also looks like taking a multi-billion dollar bath.
That's why US financial stocks endured their biggest fall in five years on Thursday - with the Dow Jones
index suffering its worst drop since August 9th, the day the sub-prime crisis first hit home.
Almost unnoticed - and less than 24 hours after striking its new stone-faced"tight-money" pose - the
Fed channelled $41bn of temporary reserves into America's banking system, the largest such rescue
since 9/11.
Financial stocks are the backbone of America's main share indices. So the real question isn't if the Fed
will cut rates again, but how quickly rates will fall to 4 per cent and how low they will go after that.
If that sounds far-fetched, consider how bad this sub-prime crisis could get. Many of these ghastly
mortgages have low introductory"teaser" interest rates lasting 12 to 18 months. It is generally only
once these rates are reset that borrowers default - with the losses then taking several more months to
appear on the books of the banks that were stupid enough to buy exposure to such junk.
So the emergence of sub-prime"nasties" tends to be a two-year process. We can assume, then, that the
chaos of recent months has been caused by defaults on dodgy loans sold two years ago - in the
summer of 2005.
But the sale of sub-prime loans didn't end in the summer of 2005. It continued, at more than £100bn a
quarter, for the rest of 2005, for the whole of 2006, and only fell significantly in the second quarter of
2007 - when the problems became so obvious they could no longer be ignored.
What does that mean? It means that even if the banks are being honest about their sub-prime losses to
date - itself a big assumption - there are still much bigger loses to come.
For that reason, it seems to me likely that US rates will not only go below 4 per cent, they could even
dip below 3 per cent - as the US banking sector and housing market take a serious battering in 2008,
pushing the world's biggest economy into recession.
This is, for now, a minority view. I'd wager it won't be for long. Already, whatever the Fed says, the
weight of money in the futures market predicts at least one more US rate cut.
This coming Thursday, both the European Central Bank and the Bank of England, will unveil their latest
thinking on interest rates. And America's ongoing sub-prime woes - and, in particular, the precarious
dollar - will affect their decisions more than is widely understood.........
Der Artikel geht noch weiter.
Die sicher kommenden Zinssenkungen werden Aktien und Edelmetalle/Ã-l usw. solange antreiben
bis Dank des Dollarverfalls ein massiver Abverkauf der Bonds einsetzt.
Viele Grüße
Vatapitta
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