Comments on: JP Morgan Predicts That Fed Will Cut Fed Fund Rates to Zero by January

By: Anonymous

Anonymous — Fri, 21 Nov 2008 00:41:00 +0000

The banks are functionally and actually bankrupt and taking the Universe down with them.

It is time to consider nationalizing them. The struggle to pretend they are'nt bk is sucking pressure time as the fuse on the economic bomb they lit burns on.

Millions of going businesses are beginning to sufocate as we fiddle with the crime families.

By: Yves Smith

Yves Smith — Thu, 20 Nov 2008 23:06:00 +0000

As for effective Fed funds rates, the Fed historically has been able to manage things to keep effective FF somewhere within hailing distance of where they want it. The theory I have read is that they are a bit flummoxed and don’t know how aggressively to move given the impact of all the fancy new facilities they have created. They’d much rather have effective FF to low rather than too high as they try to get a grip on the situation they have created.

By: Peter T

Peter T — Thu, 20 Nov 2008 22:25:00 +0000

I don't like antisemitic crap either, but I still like to get the facts right.
> FRB of New York: Timothy F. Geithner – Not Jewish

According to Wikipedia, Tim Geithner was born to a Jewish family.

By: Tortoise

Tortoise — Thu, 20 Nov 2008 18:15:00 +0000

http://www.ft.com/cms/s/0/9e45ff12-b6a6-11dd-89dd-0000779fd18c.html

is a link on QUANTITATIVE EASING and the Fed

By: Tortoise

Tortoise — Thu, 20 Nov 2008 18:08:00 +0000

The Fed still has a gun with virtually unlimited power. It is euphemistically known as “quantitative easing”. The Fed has sneakily started using it. It will be interesting to see when they will decide to use its full force.

By: Anonymous

Anonymous — Thu, 20 Nov 2008 16:11:00 +0000

As a radical economist that has been waiting 40+ years for this meltdown I applaud the demise of the greedy and corrupt system we have. I can only hope that the excesses that got us here are fully weeded from the revised economy that rises from the ashes.

Thanks for your reporting Yves. It sure is sickening to see all the flailing and denial as the house of cards comes down.

By: Lasse Enersen

Lasse Enersen — Thu, 20 Nov 2008 13:41:00 +0000

Maybe the Fed should pay banks to loan money from it it is getting ridiculous

By: Bob_in_MA

Bob_in_MA — Thu, 20 Nov 2008 13:33:00 +0000

The effective rate has been under 1% for over a month, averaging .5%, but sometimes .25%. Right now it's .38%

Poole was interviewed on Bloomberg and opined that this was an unannounced policy shift. Calulated Risk has a post up about it.

By: ruetheday

ruetheday — Thu, 20 Nov 2008 13:20:00 +0000

The whole thing is silly. ACTUAL Fed Funds Rate is hovering around 0.3%. The Fed will cut the target to 0.5% in Dec and then 0.25% in Jan, but this isn’t really a cut, it’s just bringing the target in line with the actual. By end of January, the target will be 0.25% and the actual will likely fluctuate in the 0.1 to 0.2 range. There’s no need or point in going all the way to 0. In a deflationary environment, which is upon us now, the difference between a nominal rate of 0% or 0.25% is irrelevant. The Fed has been focused on quantitative easing rather than interest rate policy for awhile now. If anything, they will soon shift away from quantitative easing (what good does it do to flood banks with reserves if they just sit on them) and towards massive expansion of their direct lending facilities (e.g., CP) soon.

By: FairEconomist

FairEconomist — Thu, 20 Nov 2008 12:34:00 +0000

I agree with PeakVT that Debtor in Possession financing would be a great thing for the Fed to get into. Companies are afraid to BK because they can’t chapter 11 when banks refuse DIP but have to go chapter 7, and there’s a lot of that going on. If the business is fundamentally sound, just carrying too much debt, chapter 7 is a big waste because the functional business will be destroyed.

John Haskell – nominal interest rates need to be maintained at a non-trivial positive rate because otherwise, regardless of other economic conditions, there’s no reason to lend money; the credit market collapses; and the economy will then proceed into deflation from credit destruction. You need deflation to maintain the liquidity trap, true; but the trap creates its own.