Historic Cut Rate

For the first time since 1954, the Federal Reserve slashed the interest rate to 0.25% (virtually zero) ,for Banks to borrow overnight. Manny of you will think that this is a very boring subject, but it’s more important that what all of you think. It’s a clear message of the Fed, trying to get us out recession as fast as they can trying to unfreeze the Finance system.

The move by the fed its clearly stimulating inflation, in order to avoid deflation, since it’s easier to control the first than the second, but we are in a point that we are running out of tools to stimulate the economy, there is no more room to cut rates, as the target cannot go negative In addition to the rate cut, the Fed said it was prepared to expand already announced large purchases of debt issued by government-sponsored mortgage agencies to support the battered US housing market. With this scenario is almost certain that the dollar will loss considerable power in a near future (just today it lost 8 cents against the Euro).

. Just time will tell, although when we look at the mirror Japan has been immerse in a flat economy growth in the last 10 years, and not even with rates at 0.25% for the last 7 years help the horrible situation. My only hope is that Mr. Bernanke, Chairman of the Fed spent his live studying “The Great Depression” and one of the causes of that event was the hike of the interest rates.

Let just wait and see. I am inclining for the idea of a long recession of at least 2 years. Just my opinion.

PS:If you have any questions or comment feel free to post it here. Comments are the best part of a blog. Keep it alive!


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