Dear Ben: Leave rates alone!

Here’s the real news!

In 1999 the Clinton Administration relaxed the rules and caused this problem. The Democrats in congress ignored the warning signs and blocked the Republicans from correcting it before it got this far first in 2004 and again in 2006. John McCain himself warned about Fannie and Freddie and the High risk mortgages two years ago. The Democrats blocked passage of his bill that could have prevented this.

In other words, John McCain saw it coming and tried to convince congress to act. The Democrats blocked him while Barack collected the 2nd most in donations from Fannie and Freddie.

The media is not interested in this fact… Instead, they’re more interested in how many cars John McCain owns.

I challenge CNN to make that headline!

Ben and Paul,
If you have second thoughts, you know what you are doing is not right for markets or tax payers. Your actions of pumping more money is bad for America’s economy when the whole world is saturated with excessive dollars. You know that very well. You keep drugging markets with more and more money when they are acting bad. How low you want dollar to go down?

You are correct with regard to not lowering interest rates.

Many believe low interest rates stimulate the economy. Why? Stock markets rise in anticipation of low rates, which allow borrowing corporations to use more cash for expansion and allow consumers who borrow, to spend more on goods and services.

But when rates are low, lenders receive less money. Banks receive less interest, with which to create money. The public receives less interest from bank accounts, money markets, T-securities and bonds to spend on goods and services.

For every borrower there is a lender. Low rates help borrowers and hurt lenders equally, with one exception: With high rates, the government pays more on its T-securities, which adds money to, and stimulates ,the economy. Historically, high interest rates have correlated with economic growth.

During the previous recession, and for the past year again, the Fed repeatedly cut rates to no avail. Low rates never have stimulated the economy and never will. Low rates stimulate inflation.

“Stimulating” an economy means making it larger. A large economy requires more money than does a smaller economy. Only the addition of money can stimulate an economy. Today, the Fed should raise interest rates to end inflation and pump in at least
$1 trillion of liquidity, perhaps much more.

Sybil, thanks for your comment. I am going to be writing about exactly what you mentioned in your post for today’s column. It’s been a hectic morning here but I hope to have the column up around noon EST. I look forward to hearing what you all have to say about it.

Thanks again. Love all the feedback. You guys are fantastic.

PRL

No more rate cuts; 2% is the core rate of inflation. At this rate, borrowed money is ‘free’, and that is cheap enough for anyone I know.

AIG needs to shrink down to a stable size. If they don’t, the regulators should shrink them. And, it needs to be removed from the Dow.

Any one of these finance companies can be replaced, and they need to realize that and act accordingly. We can set up a new bank, insurance company, ‘fill in the blank’ for much less $$$ than it would cost to clean up a failing one. Finance companies: clean up your acts, or you will be cleaned up. You’re starting to hurt the real economy, and we don’t like it.

OK, the FED did the right thing by NOT lowering the FED Funds rate. Hooray!

But, to counter that move, the FED goes and bails out AIG…BOO!

I understand WHY they did what they did, BUT, folks…financial Armageddon has just hit us. AIG was a monster of a company…now the US Government is THE MONSTER (financially speaking) of the world. AIG had it’s heavy hand is worldwide insurance commitments, NOW the US Government has taken over that responsibility. WE ARE F–KED royal…pass the vaseline.

The US defeated the USSR through financial means. We outspent them on defense until they were crippled. Now ,we are the ones crippled, and we will be destroyed financially.

This is NOT GOING TO BE PRETTY. The stock market jumping late yesterday afternoon made absolutely NO SENSE wahtsoever. Government takeovers are BAD BAD BAD, how can you possibly think that the government taking anything over will turn out good? Everything they do and touch, invariably turns to S–T. Look at ANY government run program, they are inherent LOSERS every which way to Sunday.

We are financial TOAST! Damn. My kids kids will be paying for this for a long long time.

Hey Paul,

How about tomorrow you talk about the loan to (or is that purchase of, or line of credit to?) AIG. Is it going to save them? I know CNN said they have 1.1 trillion in assets which should mean the feds wont lose money, but does anyone know how much debt and obligation they have? I mean, do they still have net worth?

And is there being any effort here to save the company, or just hold it together long enough for a somewhat orderly break up?

Inquiring minds need to know.

Please, please, please…Let AIG fail! The only way to purge ourselves of the decade-long finacial distortion from our system is to let AIG and any other “too-big-to-fail” organization fail.
Also, with regards to take-overs and mergers in our troubled time, how is it possible that merging two or more “Too Big to Fail” companies improves upon the current situation? If we allow such mergers, then that we will have gained is a “Too, Too Big to Fail” company.

Reacting to every market change with a rate change likely adds instability. To me it seems stability is more important for growth than slightly cheaper credit. Of course, no credit at all is bad, but injecting liquidity is easier via auctions (which are a great idea) than rate changes. What I would like to see from the fed is fewer changes and some information as to where they do expect to see the short term rates in longer term (and a hope that the long term average is well above inflation rate).

I absolutely agree there should be no more rate cuts. Rates are low enough and the Fed is being creative about trying to fix our problems.

An excellent article. I share your views. Common sense, economic sense, and I say you’re right on target. Thank you for publishing.

Wow. The Fed held firm and did not cut rates. I must give them credit. And for the time being at least, Wall Street seems ok with this. Very interesting. I think it is encouraging that the Fed realizes that rates are already low and that reducing them again would not help many individuals.

Thanks to all of you who posted on the Talkback today. I appreciate it.

PRL

You are absolutely right Paul! The Fed Reserve should keep the existing interest rate unchanged at this time to truth (that the current fiscal system is broke and it needs new policy/idea for the future from now and onwards) and should not inject any false hope in the financial market to cause more long-term harm than any short-term hope(as discussed in the article). In fact, it is the previous Fed Reserve chairman Mr. Allen Greenspan who kept lowering the Prime Lending rate for years and created a non-sustainable boom in both consumar and commercial real estate markets (lending became too cheap for too many people!) that in turn became the ultimate cause of the present day Wall Street turmoil. Let the market adjust itself at this time! Borrowing would be difficult only for the truly unqualified people (who has no money!), if the interest rate remains unchanged. The USD needs to be boosted at any price for the overall better health of the future economy. The current nearly 1:2 USD and British Pound exchange rate has already been proved to be pernicious for all. President Bush and his economic advisers have been able to restore Mr. Ronald Regan’s trickle down economy during the past eight years governing the country. Presidents will come and go (like Mr. Regan and Bush etc. ), but the country will stay forever! The Fed Reserve should work for the country and not for any US President or political ideology. Any lowering of interest rate at this time will only help President Bush keep smirking (in front of the camera!) and talk big about his economic achievements (which is a total blunder in all aspects)! Nobody at this time needs to hear from the White House about the economy. Enough is enough! It is only the Fed Reserve who could make them (White House people) pondering about their wrong doing of the past eight years (protracted war and continuous economic downfall) and the rest of the country will be better-off if Fed Reserve takes actions against the higher inflation, dangeroulsy lower interest rates (both for lending and savings) and higher consumer prices (at gas pumps and groceries etc.). All these can only happen if the Fed Reserve keeps the present interest rate unchanged, at least for the next several months, if not years! Drive the nail right boy, hit it on the head…..Both the Fed Reserve and consumers now need more patient and perseverance. There is no rush to fix the Wall Street now. At this time less (help) is better!

Uncle Sam should not bail out anybody.
Let the free market take its course.
Individuals loose money when they make wrong moves. Next time he/she uses more prudence in a similar situation. Honest people paid a lot of money for the houses they brought. They have paid a price being honest so let the institutions pay a price for being reckless.

Normally, a rate change will affect anything real in approx 18 months, not hours.

There are to many people who live off there CD income. Lowering the rate will just put more people in poverty. Just close down these bad companies and there CEO who where over pai to do nothing.

I should add that the low interest rates and easy credit are partly responsible for the current crisis. People who took too much risks when they borrowed more than they should are also responsible.

The Fed has already caused enough damage. Quit cutting rates,it only make matters worse.

The globe is catching our financial cold. While the rest of the world cuts rates we should either be holding ours steady or raising our rates (eventually)to bring strength back to the dollar and to get foreign money investing in the U.S. agian. The U.S. is one of the only one of three curriencies investors will want to be in if there is a global recession. The other two being the pound and the euro. The advantage the dollar has over these two curriencies is that the U.S. economy is 6 months to a year ahead of the rest of the globe in financial crisis. That is why you have a seen 20% pops in the dollar against the euro and pound.

I’ve been a saver all of my life and have retirement sums in fixed assets (I’m nearing retirement and absolutely do not trust the stock market – look who’s running it!). These low interest rates, rising inflation, and a falling dollar are severely hurting savers like me. Let’s stop trying to inflate the economy out of its debt and stop socializing risk. Do not lower interest rates – raise them. It’s time to become a saving nation again!

I agree to leave rates. In fact, rather increase the rates, now to 2.5%, mid 2009 to aka 3.5% and by mid 2010 to 5% or even higher. No sympathy for poor financial management and greed in corporate structures. This should be a white-collar crime for executives that only look after their personal bonus. Protect the people that do save and can execute strict financial discipline.

I am not a pro but I am thinking whay the congress cannot legislate a special time interest rate for only 30-yr mortgage to 3%. ans why not since all banks are in peril of a bankruptcy anyway! can you imagine how many people can and will refinance? and how many will start buying houses? especially if this only-mortgage-interest rate has a deadline- 2 to 3 years?

Amen. They are already too low.

You know it does not matter whether he leaves it alone or cuts it. It’s payback time for the greedy. The Lord hears the cry of the poor and needy. He is the equalizer and until these giants stop abusing the poor it doesn’t matter what move the Fed’s make. There is a highter power at work in defense of His people. His name is the Lord.

I mean how are we still talking about this? Would we have learned our lesson from this last year of history? We are loosing our short term memory as well.

Yes, it is time for AIG to be removed. I sued AIG in a predatory lending lawsuit but the judge dismissed it. The judge thought AIG had money so he ruled in their favor.

Grace

The LOW interest rates and easy credit (financing) are responsible for the real estate bubble and many banks’s current financial trouble. I agree with you that the the Fed should leave the rates alone.

Here are our two options at this point:

1. Severe recession

2. Severe recession AND a debased, worthless currency.

I think almost anyone with a brain would choose 1. Bernanke chooses 2, and he is going to prolong and exacerbate this thing like you wouldn’t believe.

Increase the intrest rates to encourage savings and to increase ” real investment in real plants and factories” to decrease consumption and protect the country, its resources and wealth. And to decrease speculation and gambling in real estate, stocks and all those other “exotic papers”. To create meaningful jobs that produce products and not hamburgers, and not just create “wealth”. Take care of the country and the people for a change not another scheme to make the rich ever richer. Take a lesson in real economics.

Rates are not to be decided by a group of elected and appointed persons. They should instead be correlated to another factor, perhaps population??? Our money supply is simply a “place-holder” for items and services. Why tinker with the “value” of money instead of letting the value stay the ’same’ and simply adjust the amount on the table. This way we are all chasing the same relative amount of dallars. Its like playing Monopoly, the popular board-game… if we start off with a select amount of money but continually add in more players we will come to a startling hault at some nearby point because there will not be enough money to make the game work. And i believe this is what we are seeing all the time now with a more rapidly growing population. So leave rates alone and correlate the money supply with population. The Monopoly Syndrome- you heard it here first!

Rate cuts haven’t helped so far. This is because loan rates at the retail level have not gone down. The banks are simply making more money on those who do pay their bills! Meanwhile, it’s fueling inflation that middle and lower class America has to pay for!

Raise the rate!

The reduction in commodity prices is not a reason to cut rates. My opinion is that commodities (especially crude oil) were being used as a place to park money, since there was no good place to put cash, thanks to the excessively low interest rates. A rate cut would just reinforce that method, which is hard to fault, since oil is a commodity that drives real inflation in things that people MUST pay for (heat, transportation, food). The commodities prices went up because of the low savings rates.

Lowering rates won’t convince anyone to borrow more money. All the entities that are in trouble can borrow money just fine from the US government as the existing low rates. Plenty of money was made available for lending on Monday. At these rates, the IRS would consider a loan to a family member a taxable gift!

Any savers have ideas for what to do with money saved for a rainy day that I’d like to grow a little?

Don’t cut rates. Raise them. The dollar is embarassingly low, which makes oil more expensive as well as any other commodities, which feeds inflation. Any one who worked in this country for the last 5 years received a 50% pay cut in Euros.

The phrase robbing Peter to pay Paul comes to mind…

Hey Paul,

I think you are finally on to something here. The Fed rate cuts have NOT worked up to this point, so why should they cut again? Answer: they SHOULD NOT CUT anymore. What truly needs to happen is the rate needs to be RAISED and raised significantly.

It will be painful, it will be devastating to those who spent beyond their means, but it will also be cleansing. The sooner the bad debts are flushed away, the sooner the recovery can start.

The US of A needs 2 billion dollars a day from foreigners to fund our nation (that is a very sad commentary, and unfortunately it is TRUE), so lowering rates only induces the foreign money to go find other homes. If we don’t pay higher rates of return, we don’t get no foreign money. Additional rates cuts end up hurting us now and into the future, far more than the immediate pain it would cause.

What this country needs is a guy like Paul Volcker who had the cohoneys to do the dirty work of raising interest rates to right the listing economic ship called the USS America.

Low interest rates are good for me since I have an adjustable rate mortgage that is now 3.74%(1 and 1/2 below prime) instead of over 8% not too long ago. As has been said “When my neighbor is out of work it is a recession, when I am out of work it is a depression.” Yes, it is all about ME -my situation just like everyone else who is calling for more interest rates not to be cut so that more interest is paid on their savings accounts. Wish I had a savings account!! Well, the only savings I have is in a 401K and I can tell you over the past 4 months, it is worth a whole lot less and I have been in IRA’s since 1982.and my retirement which I thought might be coming up in the next 6 years is not looking too secure now. Remember all, if something costs someone more(such as higher interest rates will cost me) then that person’s inflation has also gone up without calling for more rate increases.

Raise the rates. If the gov’t/Fed hadn’t lowered rates so low in years past, and loosened regulations so that even a dead gerbil could get a mortgate, we wouldn’t have this credit crisis to begin with.

Stop coddling Wall Street. Green is what got them into this mess, and if they tank, it’s of their own doing.

The government doesn’t seem to care at all about savers (yes, I’m one) and only those who speculate (far too wildly) in the markets. Not to mention the dollar will soon be worth less than the paper it’s printed on it if rates keep going down.

The Fed should raise the rate by .25 point. We as American will be able to adjust and tighten our belt and learn that nothing is for free. We may have to bite the bullet now but still better than a cannon later.

One way or another, the economy is going to have to take it’s lumps. A rate cut could help things very short term, but it the long run, it’s only delaying the inevitable. Do NOT cut the rate this time Benny. It’s like the flu, sometimes people die from the flu and that’s unfortunate. Some of us have immunized ourselves, so odds are we won’t get sick. But the key to any flu is to just let it run it’s course then get on track.

Leave rates alone!

Are you kidding me? I don’t want to hear about those people with their adjustable rate mortgages – refinance! The housing rates are good right now, if you can’t afford it, then move, you should have bought something you could afford.

Besides, even if they cut the rates assuming it will get more people to buy the banks won’t loan. Credit is tight and lowering the rates isn’t going to help.

Me, I’m saving my money and not getting anything for it. I don’t buy today to pay tomorrow and I’m tired of taking care of everyone else who is.

I say leave the rates alone, I pray the rates start to rise again. It isn’t fair that all these people are borrowing my savings, my cold hard cash, and I’m not getting anything for it.

Stop being so greedy and learn to live within your means.

The present rate is already very low. Don’t make it lower. And let AIG try to
stay in the DOW by fighting for it till death or glory.

Quit the rate cuts that continue to stifle or kill the geese that lay the golden eggs that keep this economy going to begin with. We deserve some consideration as well since we are the responsible ones who have paid our bills, saved a little to make an income off of and you keep cutting into that. Enough.

I am not in the first wave, but after 28 years in my house I may be in the 2nd wave of foreclosures. I keep waiting for the rates to go down so I can refinance this adjustable loan. If they dropped the rates short term to help the honest homeowner who wants to stay in their homes, it would stop future foreclosures. Some of the loans out there were illegal, loan sharking, the industry was de-regulated somewhere in time in the past. This is big!

I feel the FED should cut the rate:
a quarter pf a percent is not going to make me rich or poor but if the economy turns south and more jobs are lost that worries me more. The effects of the financial crisis has not been felt in the economy yet and also it is not over. What we do not want is a recession or worse. The more wealth that is lost or perception of a loss of wealth and loss of consumer confidence with it the more likely a longer lasting turndown in the economy will occur. What ultimatlely some leadership in Washington needs to do is to stop the foreclosure and mortgage crisis which is a root of these financial institutions balance sheet problems. Convert people’s mortgages into fixed mortgages to stabilize the drop in housing prices which is causing more foreclosures. These types of products were dangerous and should be more closely regulated.

For once, I agree with Paul LaMonica!

Don’t cut the rate, Ben!!!

Do not lower rates! That has mostly been done and there is very little that can accomplish except to set us up for more problems like this in the future. More prudence by business and a move toward more saving by individuals is that is needed.

We do not need another rate cut which will lower the value of the U.S. Dollar but rather a 25 Basis Point rate INCREASE. This will drive down the price of a barrel of oil and thus drop inflation further. This will not change the price of loans significantly and will lower the risk of inflation. The current rate is too low.

Completely agree with the article! The Fed has already slashed rates too far!

The low Fed rates are just fueling another bubble. In this case, it’s a negativity bubble.

The short sellers are out in droves pouncing whenever there’s a hint of bad numbers; it doesn’t matter if it’s just a minor bad quarter. We saw it with United Airlines last week where a “2008″ in a newspaper misprint of the UAL bankruptcy notice from 2002 caused a collapse in UUAL stock prices. We’re seeing almost the same situation with the short sellers and Goldman Sachs this week.

We’re in an ugly cycle of Fed fueled bubble after Fed fueled bubble. The Fed should focus on ending the bubble cycle and defending the dollar.

Extinction is part of the natural order and so is bankruptcy. Let the practitioners of bad finances and bad business go out of business to allow new ideas and better management to percolate through the economy.

There will always be a need in the economy for good products. If poorly managed companies are allowed to go out of business, it will provide opportunities for other, better managed companies to succeed.

Free market economics cuts both ways. If the businesses are going to be against government social programs for individuals, then they shouldn’t be looking to the government for corporate welfare through low interest rates and bailouts. Frankly, that’s they way a free economy should work; the government isn’t here to save you from your bad, short sighted decisions.

Bankruptcy is ugly, but, like a visit to the dentist’s office, it’s a necessary evil for a healthy, market driven economy.

The Fed has to lower rates and maybe those who can’t afford their mortgages because rates went up so high so fast would be able to once again afford them. High unemployment and high interest rates will not result in a recovery in the economy.

Leave the rate alone! There are seniors out there who have become vegans because meat costs too much. If they make even less after another rate cut, then I suppose they can eat their useless greenbacks.

It’s insignificant at this point. The Fed has already devalued the dollar so much that the economy is completely stagnant, and people can barely affort to put food on the table. Bottom line: There are literally TRILLIONS of dollars in bad debt floating around out there. The economy will not even begin to recover until we allow that debt to liquidate, allow the defaults to happen, and hit rock bottom. They can lower the interest rates down to 0%….it ain’t gonna make the financial institutions make loans that they know they will never get back.

If this is some kind of a conspiracy to turn our dollar into toilet paper, and introduce the Amero, then I kind of think the Fed should just hurry up and slash rates to 0%, collapse the economy, and get this over with.

As it is, my hard-earned savings is being steadily depleted by this hyperinflation. Let’s just hurry up and get this over with!!!

Writing from Europe, I think Paulson and Bernanke (remember he was a hawk on inflation?) are giving up to their cash-needing colleagues. Maybe the two of them will need a job soon. Away from irony, they are elluding their commitment to Americans: those who are wrong must fall and those who act correctly (savers, other banks, etc) must prevail. Why not helping retail stores, truckdrivers, etc?

Since August 2007, the issue has been revaluation of risk not interest rates. Investors have massively increased the risk premium that they require on products that were mistakenly considered to be relatively safe. Cutting interest rates will not help this. Banks are afraid to lend to each other so the interbank rate is high and won’t move much with a Fed rate cut. The Fed is already doing the best thing it can which is to provide critical liquidity to the market by making secured loans to the banks.

A decrease in the Fed rate will weaken the dollar and cause inflation. This will just make a bad situation worse.

Lowering interest rates will only give further incentive to give our foreign creditors reasons to pull out of the US market, which is heavily dependent on their buying increasing debt being piled on by the Bush administration.

If there is another rate cut, it may well cause panic in the bond market as foreigners refuse to further lend into an ever weakening US economy. This would mean that all our debts would begin to come due at once.

When you consider Bush has now raised the national debt to about $10,000,000,000,000 and if you divide that by about 100,000,000 for your share, that is a lot of debt to pay back quickly.

Why anyone would want to vote for John McCaine who promises to continue these policies is beyond me.

I still get the feeling that everyone is still spending more thab they earn and something will happen tomorrow so do not worry

I am not a baby boomer and I agree with Ben. The Fed should leave rates alone. Stop devaluation of our dollar! If this keeps up our country will collapse and everyone will be using the dollar for wall paper. This has happened to another country!!! Watch out! The Fed is only making the problems worse. The tax payers need to stand up and stop paying for these big companies bad decisions!

Completely agree with you i.e. rate cut punishes savers and people (like) retirees) who have to live on fixed income.

As far as helping Wall Street is concerned, a rate cut can only help in the very short run (like a couple of days). But the long term effects of artifically low rates (the 1% rate that Alan Greenspan kept) are there for everyone to see.

Why do you think there was all this appetite for the subprime securitised paper? Because there is no way pension funds could have obtained their targeted returns by investing in anything that was safe. So people simply bought securities that were highly risky and to get a higher return. In order to comply with their own investment guidelines that require a certain level of safety, they encouraged the rating agencies to call these pools AAA. So these highly risky subprime loans were now suddenly safe investment when you called them a securitised tranche. Something about pig and lipstick comes to mind in this context.

Osama Bin Laden must be laughing in his cave. It took seven years but he finally toppled the wall street giants without scrathing another brick. All he had to do was cause enogh of a shock to make the fed over react by lowering rates too low too long. The result cheap money and walstreet greed built a bubble that exploded bigger thatn any bomb he could have hurled…

Shall we do it again with more rash cuts?

I’m sure like most people I have not the slightest clue as to what impact dropping the rate has on the economy as a whole. The only DIRECT effect it has on me is my ajustable rate mortage. When the rate drops my mortage rate drops, which means I get to keep my house. So keep it coming down.

I think it’s time for a significant rate increase. Other central banks are still concerned about inflation and are not likely to follow suit, which will further devalue the dollar. Helicopter Ben needs to wake up. Keeping rates too low for too long fueled the mess we are in now. Is he going to make the same mistakes as his predecessor?

I see a lot of mixed opinions about rate cuts. Whether to DO IT or NOT TO DO IT.

Lets look at what has happened, everytime the rates were cut in the past year (7 times). Everytime after a rate-cut, the stocks never recovered, the inflation has not dropped, the cost of goods, food, oil and everything else is still on the rise.

Although, what surely happened was increase in credit crunch, increased hesitation of lenders to lend money, reduced savings & CD rates, drop in dollar value (compared to euros), increased gas prices, all of which have adversely affected Wall Street more than the short-term spikes.

This clearly indicates that rate-cuts don’t really help the way they should. Gov’t needs to do something different than simply cutting rates.

When the Fed Funds rate is higher than the 2 year treasury rate it is punitive to the economy. We need to avoid that condition now more than ever. The 2 yr is currently 1.78% The Fed Funds target rate needs to be below that.

Easy position to take, but I thinking housing issues trump everything just now and I’d advocate a 25 basis point cut to provide some relief to lenders and stimulate buyers into the market.

For the first time in quite a few months, I actually believe that the Fed needs to cut. As the dollar tumbled throughout the year, I watched the fed exacerbate the problem by pleasing Wall Street and cutting rates, obviously pouring gasoline on a fiery inflation picture – mostly driven by over-investment in commodities. HOWEVER, what we have to keep in mind is that the financial crisis we are experiencing is worse than expected (duh), and that it seems to accelerate with every quarter. Also, I see no sign of a housing uptick, at least not any time soon, and a lot of financials will not be able to withstand that; unfortunately, as we saw these past few days, the financials will create a heavy drag on the market, affecting other sectors, and ultimately pensions funds, dividends, and the economy overall.
One bright note is that most financial historians agree that the bottom is approaching when you see large bursts of bank (and brokerages to make this more relevant) failures. I think we still have a couple of ugly waves coming, but that as long as oil keeps around $100, the consumer will ultimately save financials (the ones that deserve to be saved) and the overall economy.

The Fed should raise rates by 25 basis points. The cuts were too much too fast and have done little to help the majority of people. The lower rates poured money into commodities, sending inflation rocketing. The economy is going to be painful, why make it more comfortable for the greedy while harming the overwhelming majority of people trying to get by. Fiscal irresponsibility by business, traders and individuals put us where we are today. We should not be looking to bail these people out. Let them drown instead of us hard working responsible people. It’s going to hurt no matter what they do, let’s stay focused on the future and better times we hope to have.

Yes, if rates do get cut again, it will weaken our dollar even more and the price of gas would go up again. We, the people, can’t take very much more. Leave the rate alone. Even raise it if you have to. Let’s ‘bottom out,’ salvage what is left; and move forward. These rate cuts are slowing the recovery and making it harder and hard to get out of this economic mess.

The Fed should keep the Fed Funds target rate in line with the treasury market yield curve. The rate is currently too high relative to the yield curve. To fit in the Fed Funds rate needs to be below 1.7%.

I’m currently earning 0.6% in my savings account so inflation is already eroding my hoards of cash. Let’s cut the rate to maybe, I dunno, negative 1% so that there’s absolutely no incentive to save whatsoever. Everyone would have to spend every dollar they earn as they earn it or else watch their savings evaporate. This gets the consumer back into the consumption game and since consumer spending is 2/3 of our economy – voila! – end of this cyclical correction.

Oh wait, we already spend more than we earn.

Let’s just socialize the whole mess and fast forward through the next 18 months to the inevitable: The WellsMu Federal Reserve CitiBank of Americall Lynch.

By all means cut the rate,OPEC needs the money!

He needs to cut rates as low as possible to influence a lower payment on the national debt and show the power of the federal reserve has control over the situation.

Go With Crammer…Drop the prime and allow the WaMu sale, get it out of the way the quicker the bettrer

No rate cut is my opinion. Mortgage rates have adjusted themselves down naturally this month and are holding steady. People on fixed income cannot afford to have rates cut again and again. Plus, people should be inticed to save also when they can. A rate cut will only reward those who don’t deserve to prosper from a rate cut. I am just so afraid for our country’s economy and have been for about a year and a half now. I was flinching at even the thought of another rate cut. Do not cut the rate! Please!

Fed should not cut the interest rates at this time. Let the Wall Street manage its own crisis. The Greenback should have enough power against the foreign currencies, so as to keep the inflation off, which is more important than some of the Wall Street Firms’ debacle.

If the bank cuts rates agian, I am advising everyone I know to buy gold and silver and make a run on the banks.

How about an increase in rates please! Most of the aging baby boomers are poised for retirement. For the past few years, they have moved into a mix of mostly fixed rate investments. These low interest rates are killing thier buying power! Don’t forget… aging baby boomers account for the lion’s share of this countries spending… a rate cut will just destroy this economy even more!

Anything but raise rates! This country’s dilemma is beyond rate changes and Wall Street’s screw ups. There’s a lot more to be done in order to get all of us having confidence in the United States and out financial system again. The first thing is getting GW out of Office!!

If they cut rates, it’s only another dead cat bounce twds the decline. If anything Helicopter Ben should raise rates 10 fold to reward the people have truely done things right in their life. There has been enough bail out for Wall St. Let’s have some bail out for the people who are responsible enough to save.

Paul — Leave the rates alone. Lowering them will have minimal short-term effect on credit limitations. The fear of inflation and the need to regain saver and investor confidence is vital. Lowering the rates today will seem like a “knee jerk” reaction in a crisis to many Americans.

I think rates should be cut, Savers could save America by investing in mutual funds at a time where the market is priced low due to fear, historically a good time to buy. The sheer inrush of cash would lift the market and start it’s next inevitable upturn.

THEY SHOULD LOWER THE RATES. THE BAIL OUT B&S DID NOTHING BUT QUESTION THE ACTIONS OF THE FED’S. AS YOU CAN SEE THEY ARE RUNNING AWAY FROM THE CURRENT FALL OF THE OTHERS. B&S GOT LUCKY BECOUSE THE ONLY GOOD THING THEY SAW WAS TO DO IT EARLY IN ORDER TO GET TO THE HANDS OF THE FED’S. WE ARE SO THIN THAT THE GOVERMENT CAN ONLY DO NEW REGULATIONS IN ORDER FOR THIS NOT TO GO FURTHER, BUT WE WONT SEE THIS FOR A LONG TIME. THE WORKING CLASS IS GETTING CUT IN THE MIDDLE AND WORSE, GETTING BY THE DAY TO DAY. THE GOOD THINK IS WE ARE NOT GOING TO LET THIS HAPPEN AS WE ARE A NATION OF GO GETTERS, BUT THE WAY IS NOT FUN SOME TIMES.

I am 75 years old living on social security and a small monthly distribution from my IRA. Another cut in interest rates would be another nail in my coffin. Like a thief in the night, the previous rate cuts have stolen from me the one thing I need this late in life – money.

Paul,
Sorry the FEDs should cut the rates. Saving is one thing but we in the bussiness world need to lower our cost of goods. That is directly effected by the cost of money. In many cases a quarter percent move can save hundreds of thousands of dollars which then is used to create jobs.

I think the Fed should cut the interest rate. Commodity prices are down, which is what was pushing inflation. In a couple of months, the inflation rate will be a whole lot lower than you quoted. Add to that that national retail and output figures are down, and look like they will continue down, and that unemployment is still rising. Right now, stimulating a slowing (dying?) economy is more important than people’s return on fixed income investments.

Please, for the love of God, don’t keep cutting rates. Short term hope does not for long term financial security make. What is it you want the rate cut to accomplish? It won’t bring the Lehman Brothers back from bankruptcy, save AIG or any other financial institutions that over-extended themselves beyond their means. It will only hurt the dollar, handicap any responsible investors/savings holders with nothing achieved other than to say that “we did all we could”. Sometimes responsibility means letting someone realize their choices have consequences. These institutions made their choices – now they should have to live with the consequences of the choices they made.

I am a saver; for God’s sake, if not mine, please STAND UP to the crybaby traders and whining Wall Streeters. In this world, you won’t have to answer to me — but you will assuredly answer (after bowing the knee) to Almighty Jehovah in the next!

Once again, the Federal Reserve shows it is not watching the global market and instead is looking out for Wall Street. Mr. Greenspan began this when he kept rates low to keep the market from dropping. When he did this housing prices escalated, money was cheap and greedy individuals tried to get something for nothing (investment banks, banks, rating agencies, corporations, home pricing estimators, speculators, etc.) they are all to blame.
Speads on these products were so attractive gluttony set in and the balance sheets ballooned with risky investments and mortgages that otherwise might not have existed.
Along comes Bernanke and he goes on an interest rate rise spree fearing runaway inflation, this sets off an end to the runaway housing price increases, which then as rates reset on variable loans, homes are not worth as much, then we see foreclosure after foreclosure until the market is saturated with unsellable homes. Now there is no credit to be had, home values have declined so significantly, many would be sellers can not sell and repurchase.
Bernanke then goes crazy and starts lowering rates, now all those securitized loans that exist are losing recurring income, forcing greater losses as variable products that no longer pay as much as they used to.
Inflation was still a problem, now he was caught in a tight spot – stop inflation or let the market completely implode. he let inflation creep up. Now with the dollar finally gaining traction, oil declining again and the global markets experiencing their own correction, Bernanke and company want to create the cycle all over again, at the expense of those that are acting rationally, now that the oil demand is not as high as summer comes to an end and supply begins to creep up and oil subsides.

Let the parties that fail that need to fail, step aside, that is what the capitalistic society is about. Winners and losers. You speculate, sometimes you win, sometimes you lose, so be it. The market will recover without a Lehman, Bear, etc. It may just take longer. I was a fan of the Fannie/Freddie rescue since it could have had a significant negative implication to the market and it was already Govt sponsored. The rest should whither as need be to thin out the weak and build the strong.

Stop babysitting Wall Street Ben, they do not care about anything but money anyway. Don’t hurt the rest of America to assist the rich and wealthy speculators overcome their greed.

No rate hikes. Burn them, Burn them all.

The people and government are bankrupt anyway

Irrespective of what the Fed does, savers and borrowers remain losers. I cannot see that it matters how much interest rates are cut if the financial institutions are not making more monies available, or passing rate cuts on to their customers (both which stimulate and keep the economy going). In order to reduce default and foreclosures, I believe it was necessary to bring rate relief to the borrowers; not to financial institutions who were largely responsible for initiating this crisis through poor business practices. Basically, I think the bailout began at the top, instead of at the bottom which is a major problem.

I absolutely agree. And since when did one of the Fed’s mandates become “thou shalt not let stock prices go down”? The argument that they are a reflection of growth, which is a Fed mandate, is weak, at best. If it isn’t clear to Ben and Company that rate cuts are not the panacea for the financial industry by now, then we have bigger problems afoot.

At 61 years old I have watched my savings rate drop over and over for the last 7 years. Who gets the earnings that I would have made? No more cuts Benny! Show some guts and raise the rates a point!!!!

This problem was not created due to high interest rates and it will not be solved by decreasing interest rates. The problem is because of credit rating agencies getting in bed with investment bankers and giving AAA rating to investment vehicles (which are no different from mixing rotten eggs with good eggs) and selling them on to others. Now that the music has stopped it is time to clean the house. House. House price bubble was created due to Greenspan keeping interest rates too low for too long to win kudos on Wall Street. The message to Americans was the world is awash with printed dollar bills and foreigners will buy it even if we lower interest rates, so don’t bother saving, just borrow and spend. Do not be fooled by the dollar appreciation which has happened now. It is only because Europe is down too. Lowering interest rates means savers like me will pile once again money in to the commodities to escape the negative real rate of interest forced on us by the federal reserve. At inflation above 4.5%, 3% savings accounts rate savers are bleading and looking to move assetts out of USD. Don’t count on us to continue to bail out Wall Street!

I agree with your assessment. A rate cut now would do nothing to help with the underlying problem and could easily stop and then reverse the dollars rise and drop in commodities. Let the banks sort out their mess with their money and not take the tax payers do with them. I really hope that there will be investigations into some of the major players as the misery they have caused, if proven that they purposefully circumvented regulations, are certainly deserving of criminal charges. The CEO’s should go down with their ships instead of leaving them on “Golden liferafts”!

I completely agree with this article. Please don’t fold to the momentum people and lower rates again. Instead talk to the SEC about coddling the hedge funds with the loosening of regulations regarding shorting on a downtick and naked shorting. The shorting regulations need to be addressed. I honestly am losing confidence in the credibility of the SEC. A concerned small investor.

skanky Bernanke will do whatever the market demands. wether or not it is the responsable thing to do. Ben and Hank need to be replaced by people that will do the right thing, not the popular thing.

The Fed will continue to cut rates; maybe to zero or less. The whole system, including the Banks, are existing in a fairy tale economy.

This fairly tale will end. At the moment the US dollar is worthless; there are too many of them. The end will not be pretty but will rebalance the system with a dose of reality.

Mr. Bernanke,

Do not cut rates. It is time for all who made this mess to stand-up and be recognized. How by being removed from any position of responsibility and to lose there ability to work in any financial businesses.

The American people should further continue to feel the pain for stupid decision making and being part of the “Greed Machine”.

The government lending money at less then inflation is just welfare. It is the US (We, the People) GIVING to them.

I so agree with Paul. We, (the People) cannot afford to give them yet more money when they can’t seem to handle the money they have.

On the other hand, if Ben does Ben(d) over, the falling dollar may well bring back some manufacturing AND help us reduce energy use. So maybe it wouldn’t be all bad.

Absolutely they should, Wall Street and Main Street are melting, don’t you see that?

Ben and company should resist cutting rates. We finally have the dollar headed in the right direction, don’t pull the legs out from under it.

For God’s sake NO!!!! The Dow doesn’t run the economy, interest rates do. We use rate cuts like heroin addicts use drugs – just to avoid the pain we have brought upon us through fiscal irresponsibility. We need to stop saving Wall street at the expense of the middle class. We need to stop ruining the dollar to avoid recessions. We need to end our addition to become healty again.

No to any further rate cuts! I would not loosen up credit anymore than the low rate levels we have now. Banks and credit card companies will not lower rates to borrowers, even if you could get a loan.

I agree with your comments that the only result of the rate cuts has been to punish responsible investors.
I not only oppose a rate cut, instead of dealing with .25% changes, I wish the fed would start increasing the rates .1% / month.

No rate. No rate cut. PLEASE REPEAT THAT AGAIN MANY TIMES.

Creditworthy institutions / individuals will have access to credit even otherwise. Not so creditworthy folks [inclding institutins sliding towards insolvency] will i any case not be helped y the rate cut.

We have been experiecing the after effects of low cost capital…why do it again. By historical standards, a 2% rate is extremely low as it is.

Ben, PLEASE DO NOT BEN[D]OVER!!

I don’t think it makes any difference whether or not the Fed lowers rates except for as you say as short term psychological impact. Fed funds are already at 2% and they don’t have much left to cut. Any rates cuts are so insignificant relative to the real problems in the economy. So, “to cut or not to cut”, that is the question. Inflation is not a problem and I don’t expect it to be as we are entering a severe deflationary depression which can only be slowed by huge liquidity injections from the Fed. Savers have been penalized and speculators have been rewarded in this economy for a long time and I don’t see that changing.

Paul,

You are right the Fed shouldn’t cut rates, but that is not what he will do. We are in an election cycle and, like it or not, the Fed is a political animal. The powers that be are going to try to keep the economy limping along with bailing wire and bubblegum until after the election.
Personally, I would like to see the Fed abolished, let the banks and our currency compete in the open market and back our currency with something other than faith. Outside of my little dream world, the best medicine that our little cartel of bankers could give us is a rate increase to help the market accelerate into a much-needed correction. The sooner we get to the correction, the sooner our recovery will be. Otherwise, the Fed could keep doing what he is doing and we can keep dying the death of a thousand cuts (both literally and figuratively).

Great column, Paul! Agreed: “a rate cut won’t help other than to maybe give a fleeting psychological boost to short-term traders.” And you pointed out all the downsides to a rate cut….hopefully, the Fed understands those downsides as well as you do.

YES! YES!! YES!!! The Govt has bailed out Fannie, Freddie, BSC, and a whole host of other folks. Now the Govt might bail out AIG! Wahoo!! (I don’t know why LEH was allowed to fail-maybe someone was asleep at the switch). Anyhow Partner, SOMEONE NEEDS TO BAIL OUT THE OIL & GAS COMPANIES!! They’re are DOWN -24% YTD!! Who will bail out XOM, CVX, BP, etc!!?? This is an OUTRAGE!!

THE FED MUST CUT RATES SO OIL CAN GO TO $200/$300 or more a barrel. I’m concerned about the pensions of oil executives. They might not be able to afford to put food on the table.

Paul, I agree with you on this. But I doubt fed has any other ways to “help”. And there are too much pressure for fed to not do something. So I think it going to cut the rate.

Paul,
I finally agree with you! One of the worst things the Fed can do now is lower rates, and you rightly pointed out that the dollar would get hit. We are just now seeing a long overdue strengthening in the dollar and a huge burst of the oil bubble. A very smart Fed move would be to take back a quarter of a point and release language that it will be on hold for awhile to see how the markets will respond in the future. This will further strengthen the dollar and continue to drive oil down, removing two key inflationary components in our economy. Mortgage rates will react positively to the anti-inflation approach and will continue to support the battered housing market, leading to a firming of that market. Just my thoughts!