Fed cuts key interest rate to between zero and 0.25%

cnbc.com/id/28254875

Only a matter of time before Trichet follows suit.

Welcome to Japan.

What’s interesting about this, aside from all the other things that are interesting, er, okay, ONE of the interesting things about this is that money market funds (where a big chunk of US savers keep their money) charge a fee of 0.08-0.5% (see here for the cheapest 25 from May of this year). Now, a fair number of funds are going to be offering negative interest!

Given that I have a chunk of money in cash in a PRSA that charges me 1%, that is going to become a reality for me too if Mr. Trichet follows Septic’s prediction. What then? Push it into a bubble? But which one to choose from? Treasuries or, er, Treasuries?

I don’t get how deflation can survive if the interest rate is that low.

Could take up to 18 months for the full effects of those cuts to kick in - more than enough time for plenty of deflation in the interim.

Get long Canadian lumber, the printing presses will be going non-stop.

Cramer is on CNBC telling everyone to borrow and buy everything from banks to real estate and real estate bonds. He says this is great and “nothing bad is ever going to happen again”.

So the US has just shot itself in the head. Way to go Ben!

At the risk of boring old-time Pinsters rigid, I’ll repeat me long-held mantra for the benefit of any noobs:

ZIRP feeds and prolongs a deflation that has been caused by an era of stupidly easy credit which then bursts.

This effectively takes the US out of the game for 20 years.

The dollar is tanking as I type :nin
Hard to believe that a few short weeks ago it was 1.25 to the euro.
Now our exporters are going to be strangled by both a collapsing dollar and a collapsing sterling.

Time to start thinking of leaving the euro.

Time to start thinking about stashing my euro somewhere! What to do with a euro pension is the question!

I hope this works Ben because you have just run out of silver bullets.

What do you want, to become Iceland?

You’re not boring me, with saving pointless, I don’t see where capital is going to come from for investment. Money is still expensive for companies (8%+) so borrowing with deflation of say -2% means you’re effectively paying 10%. That’s some feckin’ return required on investment. OTOH, if you slash off more jobs than you lose in sales, you are quids in.

Will he have to start using gold ones next?

Why have a chunk of money in a PRSA in cash and get charged, when you could have cash in cash?

Are you in US treasuries? Maybe the bund for a while, but there is now a clear bond bubble.

I won’t give investment advice, but I would say this, be prepared for that bubble to burst.

The worst case scenario if you were in cash & bonds would be for a bond collapse.

https://www.youtube.com/watch?v=qb5Ii0iIcXo

Deflation is very far the biggest fear right now but I still can’t get my head away from the idea that we are headed for inflation. I can’t see any other way for the debts to be re paid.

If we get deflation it makes no sense for anyone to continue paying off loans for rapidly depreciating assets. We will have unprecedented levels of defaults. And since the biggest borrowers right now are governments that means large developed country sovereign defaults.

I see the Fed’s mission now as double digit inflation.

Er, tax relief?

Nope - just in European. Yes, I do believe you’re right.

The problem is, I don’t know what the effects of a treasury bond collapse would be? I presume if there is a bond collapse, the result will be that bonds have to give a decent yield again. But what would that be? From overbought to a decent yield - what is that in terms of a loss? And then with all the supply coming on, does that mean the yield of new bonds will average in? Meaning that buy and hold funds will end up making it over the longer term?

Can you explain the mechanism of the theory briefly - especially the 20 year part?
I don’t understand.
In my view, there is likely to be a temporary deflation (maximum duration 18 months),
then followed by the beginning of hyper-inflation.
Then some new currency will be published to clear out the old and bring in the new…

The trick will be to catch the ebb and flow of this tsunami and be able to come out the other side prosperous?

A bold move, avoiding the problems the Japanese had where they waited too long to cut to zero. Although essentially rates were already at zero, the talk of quantitative easing is what we’re really rallying on.

Quantitive easing for whom :question: The US consumer is buried in debt and while it is possible that they will continue to maintain the current levels of debt it is hard to see them taking on more until real wages increase and employment levels stabilize. The Japanese had cash in the bank but allot of negative equity, they chose to leave the cash there and take advantage of the low interest rate to pay down debt. The US consumer has negative equity and additional debt in lieu of cash, exactly who will benefit from this quantative easing :question:
I can see some benefits for small businesses, in fact our company will reap some decent benefit, but this is only good to defer the inevitable, unless consumer spending recovers the house of cards it supports must fall. The likely best outcome of this for the US is that a weak dollar will lead to some potential recovery in export markets but the Chinese could get pissed pretty quickly and devalue. The whole world is now fighting for a piece of cake that just has contracted 50% in 3 months, something has to give :confused: