US rate cut - planned or panic? "They'll do more if they need to to ensure that the economy doesn't go into a tailspin" - Dana Johnson, head of research at Banc One Capital Markets in Chicago. More worryingly, the US trade deficit is still running at $1 billion a day By Julian Bishop, ITN Moneydesk

Every morning the chairman of the Federal Reserve, Alan Greenspan, likes to get up at 6am sharp and to run himself a soothing bath.

The most powerful banker in the world - some may say the most powerful man in the world - then likes to lounge in his tub for a full hour, ruminating on the state of the economy.

But during his soak yesterday he may have been contemplating the grim prospect that the US economy - and maybe more importantly the stockmarket - was on the brink of taking a bath too.

Because Americans have tied up much of their wealth in stocks, any steep fall in the markets hits them directly in the pocket, so given the daily freefalls in Nasdaq and dire warnings of recession, it was pretty clear that there was no time to waste.

Maybe Mr Greenspan - a notable news junkie - also took fright at the front cover of Time magazine, which screamed from its front page about the prospects of recession.

US analysts believe there was a touch of panic. "They'll do more if they need to to ensure that the economy doesn't go into a tailspin," said Dana Johnson, head of research at Banc One Capital Markets in Chicago.

"They're absolutely committed to doing everything they know how to do to prevent a hard landing."

And in the past the Fed has pulled out all the stops to prevent a hard landing to keep alive the so-called "Goldilocks" economy with its virtuous circle of low inflation and low unemployment coupled with low interest rates.

In 1998 the world was once again on the brink of economic disaster as the Russian economy threatened to implode and a huge hedge fund - Long Term Capital Management - looked like collapsing.

To bring back confidence, the Fed cut rates no less than three times in less than two months, only to find the stockmarket reacting with horror as it concluded that the Fed knew that other hedge funds were in the same predicament.

The last time before that when the Fed shaved a half point off rates was in 1992 when the economy ran into the recession buffers - but again, the scale of the cut prevented an outright slump.

The Fed's work is probably not yet done, though. Interest rates are only back to where they stood last June, leaving plenty of scope for future reductions.

More worryingly, the US trade deficit is still running at massive $1 billion a day and Americans are still happily ploughing money into the stockmarket in the belief that the Fed will always ride to the rescue.

On top of that, there are fears that the tax cuts proposed by George W Bush may stoke up the economy to unsustainable levels yet again, creating another "bubble".

Next time there may be too bubbles in that bath even for Mr Greenspan to burst.

http://itn.co.uk/news/20010104/business/08greenspan.shtml

-- Martin Thompson (mthom1927@aol.com), January 05, 2001

Answers

Those who are unable (or unwilling) to make the rational and logical association between 'free' trade nonsense such as NAFTA, GATT (& all the other alphabet soup deals) and the loss of North American factories and jobs will someday be called to account for their sins. These Globalists are in the process of wrecking the American economy, selling our jobs overseas and worst of all - making us dependent on foreign suppliers for many of our high-tech military gear! The term 'trader' (traitor?) comes immediately to mind.

Isn't the relationship 1 billion dollars in trade loss = appx. 20,000 American jobs? That translates to around 5-6 MILLION jobs lost annually in the US alone...at the current "balance of trade" (current accounts deficit) levels. All the while, these same Globalists are enriching themselves at OUR expense.

Not exactly a pretty sight for all those foreign hands that are still holding US govt. paper, US stocks, etc. Makes one wonder what will happen when the 'stuff' hits the fan. Wanna guess when that'll happen? Think it already has/is?

-- GlobalistsDontGiveA (DamnAboutThe@USA.com), January 07, 2001.