CHESSNOID

The stock market seemed a bit nervous today moving up and down above the break even line but eventually closing down. Most of the news seems to be hinging on what the Fed will do next. Sometimes it is difficult to understand and to predict how the federal reserve’s actions will affect not just the US economy but the global economies that are dependent on us. I understand that the federal reserve wants to avoid a domestic recession and cutting the rate was a nice show of moral support, but not a real solution to the problems we are experiencing. They may inadvertantly hurt international economies by trying to manipulate the natural flow of our business cycle.

The federal reserve must know the effects it has on the global economy by the way the currency exchange rates seem to be reacting. I know they do care and are probably worried about the long term problems this will cause. Our budget surpluses and deficits with each country actually change in value when the federal reserve makes these indirect valuation changes. As each country experiences the effects of our rate cuts to their currency, they will naturally react to keep their own economy healthy and stable. And so the domino effect will start. At this point, I don’t think anyone will be able to really forecast how it will play out. All anyone including myself is apply economic theory learned from college and see if it plays out the way they taught us.

What we can observe at this point is the dollar value going down against other currencies (US Dollar Hits New Low Against Euro for 7th Straight Session; Canadian Dollar Hits 31-Yr. High), the price of gold and crude oil hitting shooting up to new highs (The CRB commodities index was far more interesting than the stock market today, even though the index finished the day close to unchanged. Crude oil futures for November delivery were especially volatile today. Crude prices traded as high as $83.76 before running into resistance. They closed the session at $81.39 or nearly 3.0% off their high. Gold prices jumped 1.3% to $749.60 per ounce. Once again, gold perked up as the dollar index (-0.8%) slid to new lows)., and finally a big internet bank was shut down by the FDIC (NetBank Inc., an online bank with $2.5 billion in assets, was shut down by the government on Friday because of an excessive level of mortgage defaults. It was the largest savings and loan failure since the tail end of the industry’s crisis more than 14 years ago. Federal regulators appointed the Federal Deposit Insurance Corp. as a receiver for Alpharetta, Ga.-based NetBank). These are all the after effects of the way the federal reserve has managed rates for the past few years now coming to light.