11 December 2007
Short-sighted Wall Street
Posted by Joy Bischoff under: World Economy .
Last August, when the stock market became very volatile, raising fears among investors, I listened to leading economists discuss the fact that a lowered interest rate would signal to foreign investors, that our dollar was weakening. This information was widely reported and discussed. Excerpts from the following article that came out today after the Fed cut rates a quarter of a point, shows we have forgotten the prevailing wisdom that a weakened dollar is bad for long-term economic stability.
When I saw how drastically fears of an unstable economy were growing in November, I predicted to friends that the stock market would rally with promises of a Fed rate cut. I believe this to be because people fear immediate distress more than solid, longterm fiscal responsibility. Do the homework, a weakening dollar will spell disaster. Iran is signaling that they no longer want to accept the dollar in exchange for oil. In effect, our dollar is now backed by oil, not gold. If the euro becomes the preferred currency, foreign investors will no longer want to buy our debt which has become a monster out of control. The plunging dollar cannot sustain our debt, and Wall Street is being very short-sighted. The Dow plunged over 300 points because, according to Wall Street, the Fed did not cut the rate enough. This kind of thinking will quickly pull down the house of cards that has been built by our national debt.
Wall Street Plunges After Fed Cuts Rates
Tuesday December 11, 4:00 pm ET
By Joe Bel Bruno, AP Business WriterStocks Plunge After Fed Cuts Rates As Expected; Policymakers Signal Further Cuts Are Possible NEW YORK (AP) — Wall Street plunged Tuesday after the Federal Reserve lowered its benchmark interest rate by 0.25 percent, disappointing some investors who hoped the central bank would take more aggressive measures. The Dow Jones industrial average, which had been up about 40 points before the decision, fell 300 points.
Investors had been expecting policymakers would cut rates for a third straight time, though there was debate over the size of the cut. Most economists had been expecting a quarter-point cut in the benchmark federal funds rate to 4.25 percent — but some investors were hoping for a half-point cut in the Fed’s last meeting this year, and their disappointment took the market lower.
Fed officials signaled that further cuts are possible if a severe downturn in housing and a crisis in mortgage lending worsen. Investors had sent stocks higher in recent weeks as they grew more confident in the Fed’s openness to loosening its policy again.
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