Friday, November 30, 2007

Why the Feds are bailing out the banks again?!?!?!

I don't believe it. I thought at long last they are going to hold the benchmark rates steady so as to let the policies filter through and settle down. Now, they say that they might be cutting again!

Logically, when someone wants to borrow money, but know that the rates will go lower and lower every month, will this person wait for until the rates hit the trough? Of course this person will if possible!!! The feds are actually encouraging these people to wait by refusing to stabilize the benchmark rates. Everyone is waiting for the rates to be stable before lending or loaning. Of course there is a liquidity problem.

Furthermore, now we have a liquidity problem because of the sub-prime crisis. Meaning, people want to loan, but no one is willing to loan them the money. Therefore, lowering the rates would have no effect on the current situation. In fact, lowering the rates will just worsen the liquidity crisis. The only effect it has is to push down the USD further, and fueling the inflation upwards again!! After this, countries would seriously think of replacing the USD with the Euro. USD would lose its place as a reserve currency, and it would go on a downward spiral. Without its status as a reserve currency, I want to see how they are going to dig themselves out of the debt cycle. This crash would even be bigger than the great depression.

At least oil did not hit USD100 this month. However, it did hit USD99 last week. If US cuts benchmark rates again, you can be assured that rate cut plus cold winter equals ... ... ... Rest assured that not only oil will be affected. Suddenly, I think that barter trade is much better than all the paper money flying around.

I really hope that I'm wrong, for the sake of everyone.

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