CHESSNOID

Right now interest rates in the US are sitting a lowly 2%.  One of the reasons why prices of gas and food rose in the last year is because they made 7 rate cuts in 7 months to avoid a slowdown. They also pumped a ton of money in the system to increase liquidity.  To be frank, the results have been catastrophic failures.  Even the bailout was just pure fraud in my opinion.  Our government, federal reserve, and US treasury have made wrong decision after wrong decision.  You can see they are wrong by the measure of how well our economy is doing.

The world’s central banks have dumped massive amounts of liquidity into the financial system via overnight and short-term loans.

And the Federal Reserve on Tuesday announced it would form a special purpose vehicle to purchase three-month unsecured and asset-backed commercial paper in an effort to restore liquidity to the corporate lending market.

Economists said the Reserve Bank of Australia’s unexpected decision Tuesday to slash its key lending rate by a full percentage point, to 6%, underlined ideas the world’s central bankers are ready to begin cutting official interest rates in a bid to fight financial turmoil and head off a major, global downturn. See full story.

A half-point cut had been anticipated. The decision to slash by a full percentage point marked the biggest rate move by the central bank since 1992.

“The opinion seems to be that this is paving the way for further easing of monetary policy elsewhere in a renewed attempt to thaw credit markets,” said James Hughes, market strategist at CMC Markets. “And although this may be a U.S.- led policy, the fact remains that the implications of the credit squeeze are being felt elsewhere too, and as a result there’s speculation that Europe could follow in such a move.”

A few of those rate cuts previously made were coordinated with other countries.  The stock markets did rally temporarily back then only to end up where we are now which is 30% off our 52 week highs in a one year period.  Now, there are rumors the US will cut rates again to help the economy.  I think they just want the stock market to rally one more time before our lowest approval rated president leaves office.    Of course, if we do this other countries will copy our acts into further disaster.  Why?  I guess because they don’t know what to do or they hold alot of US dollars as their investments.  Your guess is as good as mine.

In the short term, the stock markets will rally but inflation will build again.  Gas has not fallen back to $2.50 a gallon at the pump. It is still hovering at $3.50 in California.  Inflation at the supermarket can be seen in the food prices, too.  Some of the prices look like they have doubled in just the last year alone.  Bread is $4.00 a loaf and a half gallon of milk is $4.00.  Long term, higher prices will continue to slow down our economy for much  longer and make our “unofficial” recession more severe.  That is what happened in the last round of rate cuts.