CHESSNOID

The federal government raised its auctions amounts by $200 billion to increase liquidity.  This was coupled with cooperation from other countries also experiencing major losses with the US subprime debacle.  This set off a frenzy for bargain hunting investors and institutions buying everything that seemed to look cheap in price.  Google even shot up +26.22 to finish at $439.84.  Could this be the bottom of the market?  All the major indexes shot up over 3%.  No one ever knows.  This was definitely a great run up. After the last 3 days of losses, I did feel the market was oversold and expected a bounce. Nothing of this magnitude, of course.  Now that is has shot up so fast in such little time, I feel like the market has become overbought.  So the opposite could happen where we have a quick sell off.  Again, nothing I would think of any great magnitude but then again I didn’t expect such a big bounce today.

As far as the liquidity issue, I am not so sure how much this will help the economy.  The theory behind increasing the funds is to help banks by giving them more access to cheap money.  I think the reason why it is not translating into the normal effect of increased loan activities is due to the recent extreme losses by the subprimes are making lenders not just more hesitant but overly cautious.  Just a few years ago, different types of consumers from excellent to marginal credit could qualify for loans.  Now it seems banks will only give out loans to consumers who are not only have perfect credit but little or now debt and longevity on the job.  Most consumers will not be able to meet those stringent qualifications, so they will just be turned down.

Also with the state of our economy, people are being more conservative and avoiding taking out anymore debt that they already have.  Those who are maxing out credit cards and credit lines are the consumers who are simply living beyond their means and usually wouldn’t qualify for any more credit beyond what they already have.

Long term, the cash infusion into the economy by this route will unfortunately not help the economy going into the right direction.  Asking people to take out more debt in a recession is a bad idea.  Most people who know better will try to live within their means even if it means cutting back on other areas of spending due to higher prices of gasoline and groceries.  It seems like the auctions were more to help improve investors’ confidence in the stock market than to actually help the consumers’ confidence in the economy.  Stocks go up for a day to two before that feeling fades, but  the prices of gasoline and groceries stay the same or increase.  We are definitely in a recession that the white house and federal government doesn’t want to acknowledge.  Along with that constant denial follows the lack of constructive action needed to get us out of the recession that becomes more severe with every passing week.