Recession fear forces hand of US central bank

Recession fear forces hand of US central bankPressure grows on world's largest economy BY Larry Elliott and Ashley Seager08/18/07
"The Guardian" -- -- The Federal Reserve, America's central bank, made a dramatic intervention to support share prices yesterday as it took fright that this week's meltdown in global financial markets could tip the United States into recession.In a move that surprised the markets, the Fed responded to the week-long battering of stocks by cutting one of its key interest rates to help banks.
It hinted that it might cut its main base rate to help homeowners and businesses next month.Earlier this week, one of the Fed's key policy makers, Bill Poole, had said it would take a "calamity" to force it into an emergency base-rate cut but it opened the door to such a move yesterday when it expressed concern about the fallout from panic-stricken global markets.The move prompted an immediate surge in share prices in the City, and relieved dealers turned a 40-point fall in the FTSE 100 at lunchtime into a 205 gain by the close of business. It ended at 6064.2 points - a slight gain on the week.Wall Street also made hefty early gains, rising more than 300 points at the opening, but concern that the Fed had been forced into action by a looming downturn in the economy or a yet-to-be announced problem for a major financial institution later reduced the surge. The Dow Jones industrial average was up almost 150 points by lunchtime in New York.Overnight, stock markets in the far east had suffered fresh losses amid concerns that exports to the US would be hurt by the crash. With the American economy counting for more than 20% of global demand, a recession there would have knock-on effects round the world, especially on countries in Asia which supply flat-screen TVs and computers to US consumers.The Fed cut its "discount" rate - the rate at which it will lend to commercial banks - by half a percentage point to 5.75% in an attempt to oil the wheels of the global banking industry.The Fed, whose chief Ben Bernanke had been under severe pressure to act all week, also said the outlook for the US economy had worsened - something dealers described as a coded warning that it would be prepared, if necessary, to cut its main interest rate from its current 5.25% level when it next meets on September 18."Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth," the Fed said.In a concerted European effort to talk up the markets, Alistair Darling sought to soothe fears that growth in the UK would be jeopardised by the market turmoil. "The UK economy is strong and stable. The global economy is also strong at this time," the chancellor said. He added, however, that there was "certainly an argument" for greater transparency in markets and noted this would be discussed by G7 nations in the coming months. Finance ministers in France and Germany issued their own messages of reassurance.City analysts disagreed over the significance of yesterday's rescue bid. "The Fed will now do whatever it takes to re-establish financial stability. The worst is now over," said Sherry Cooper, chief economist at BMO Capital Markets.Diana Choyleva, economist at Lombard Street Research, said markets still did not know the full extent of the losses from the US sub-prime mortgage sector - loans to uncreditworthy borrowers that have turned sour."Investors and lenders alike are scrambling to figure out what the size of the problem is and whether they are exposed to it. There is no authority on the global scene to come out with a credible estimate of the overall exposure," she said.



I was just wondering if the Federal Reserve could be sued since it is a private entity doing the peoples' business as it were. I am thinking along the lines of some sort of negligence in the mismanagement of the economy. They are after all earning billions of dollars for their role as caretakers of the economy.Why should we the innocent consumer have to put up with irresponsible market activity? Cheap money causes all kinds of problems and these professionals at the Federal Reserve should know that. They have lots of experience since 1913 in guiding an economy, as it were. They know how to create depressions and the things that make a recession happen.Allowing economic bubbles to occur all over the place can be blamed on Federal Reserve policy; they know through experience that certain asset classes are going to be inflated as a consequence of monetary policy and that events can unravel in devastating ways as a funciton of lack of regulation of the financial markets. I am thinking about derivatives and leveraging as well. If these things are not managed then all kinds of collateral damage can occur. The recent sub-prime business just represents a lack of regulation and the policy makers should know, or ought to have known what the results would be when you loan money to bad risks in an inflated economy. ( some people cannot afford to own a home yet they were allowed to become home owners- this is negligence or fraud - take your pick. ) Someone is going to lose. Wasn't the Savings and Loans scandal during the Reagan years just another example of lack of regulation in the financial markets?Citizens of the U.S. or anywhere else should not have to worry about their life savings because of mismanagement or negligence. The government is irresponsible enough, but the problem is certainly exacerbated when a group of private bankers, supposedly in the know about financial matters allow matters to get out of control. Someone is responsible for these economic messes. I am just trying to point a legitimate finger at one of the culprits.Carl Baydala Homepage 08.19.07 - 3:42 pm #

Over the past six-seven years the Cheney-Bush cabal (and previous similarly-minded administrations) "paid" governments, military huntas, mercenaries, around the world to satisfy its lust for carnage, destruction, and loot. It pays dollars that previously didn't exist. Those dollars are bound to weaken economies around the world. The amount of money printed far exceeds productive labor and goods. It is money paid for the labor required to destroy people and goods. Ultimately the more money not backed in any way with labor and products, the fewer goods or services available. That's why, under similar conditions, it required a wheelbarrow of money to buy a loaf of bread.Steve 08.19.07 - 4:00 pm #

ARE YOU READY TO VOLUNTEER?ARE YOU READY TO STOP TALKING AND START WORKING?http://www.meetup.com/search/?ke...ch& jsCountry=usFind your local Ron Paul meetup group. This is great for entry-level folks getting into the world of activism.http://ronpaulrevolution.comThe place for independent hardcore activists.http://freedomtofascism.comA gateway organization to the whole movement and the movie that provided a new foundation.http://restoretherepublic.comSame people but kept up to date and it has a forum. You volunteer for one, you are in both. Also, check out Oyate's editorial section in Latest News!http://thefreedomfellowship.blog...p.blogspot.com/ Hard core activists. Less fluff.This is just a few of the right-radical stuff. If you are a dedicated leftist, go activate with them and God bless you. We'll see you in the streets!LET 2008 BE REMEMBERED AS THE YEAR THE PEOPLE SAVED AMERICA.Oyate. Homepage 08.19.07 - 5:04 pm #

@ Carl Baydala,You are on the right track. To get up to speed with the latest legal actions in this regard, please consult the We The People Foundation athttp://givemeliberty.org/These guys formed the prototype of a national patriot network and provided a real backbone for the new movement. Most of the early Freedom To Fascism (AFTF) or Restore The Republic (RTR) coordinators are WTPC coordinators.Since then, there are tons of spinoffs into groups focussing on Real-ID, North American Union, RFID, property rights, IRS-attack units, you name it.But the basic magic we're just beginning to understand is this matrix, this power we are that is larger than any of us understands. We've become a true grassroots power. But this distributed system has a downside: we're disorganized as hell. There's no central anything. Go ahead, try and dictate a structure to the core libertarian activists, I dare you. I double-dare you.This is why I consider the R3VOlUTION to be the paramount influence. R3VOlUTIONARIES don't wait for instructions or permission, we just do. We know we have it right because the whole nation is copying us.An Arizona motto is "I just do what I do and sometimes others do it with me".Another Arizona motto is "if it's not fun, you ain't doing it right".And the motto of the R3VOlUTION, "when we say revolution, we say it with love" because that's the whole point of the strange lettering in our banners. the EVOL spells love in mirror-writing. There's a secret "I love you" in every R3VOlUTION statement.See that? I did it again. I just told you I love you. My days are spent making money about 30% of the time. The rest of it is all activism. I'm kind of like a nodal point in the movement, one of many. I never know what's going to happen next, but mostly I facilitate contact and action by communications. I try to get out and do direct-contact activism at least twice a week or I totally bug out. In Arizona, we've set a precedent for national activists and our friendly challenge has been well received.WANT TO SEE WHAT WE CAN DO?http://www.youtube.com/results?s...n& search=SearchWHAT THE HECK ARE YOU PEOPLE WAITING FOR?IT'S WAY MORE FUN TO FIGHT FOR FREEDOM THAT LIVE IN FEAR!Oyate. Homepage 08.19.07 - 5:23 pm #

Maybe I missed something in the article, but I have the impression that the scope is extremely limited, like waking up from a trance, and wondering what's really going on!I wonder if the so-called "financial profressionals" really know much of anything, or maybe the brightest of them have already scamed the system and now are playing dumb.Most of us unqualified dumbies expect the repercussions of this bursting, "stupid" bubble to be working through the bowels of the world economic system until at least 2009.
My impression is that this problem is so big that I doubt that the "system" won't be recovering for years. Right not, attempts to deal with it are really like trying to stop the bleeding from the amputations with bandaides. Rots of ruck!And so "good luck" to all you aware and excellent people who seek the truth!Patrick Hickey Homepage 08.19.07 - 5:25 pm