Fed Chairman Ben Bernanke
Following last week’s emergency .75 percentage-point interest rate cut, the Federal Reserve’s Open Market Committee today slashed rates another .50 percent in a move designed to ease the mortgage crisis and stimulate the economy.
The Fed hopes the nearly unprecedented 1.25 percent cut in the funds rate in just eight days – lowering it to 3 percent – will ease pressure on upcoming hikes in adjustable rate mortgages.
Within a half hour of the announcement, the Dow Jones Industrial Average rallied to a more than 160-point gain, reflecting the market’s enthusiasm for the rate cut. But not all market observers were impressed, and by the end of the day, the Dow finished down 37 points.
While the cut provided an immediate boost to the stock market, it also drove gold higher and the dollar lower.
In the first hour after the announcement, gold soared to $938 an ounce and the dollar sank to $1.49 against the euro, close to the all-time low.
“The Fed is making it appear they are compassionate when really they are the architect of the coming deep recession,” contended Michael Bolser, the author of an investment analysis newsletter published daily in conjunction with his website InterventionalAnalysis.com .
Bolser argued that former Federal Reserve chairman Alan Greenspan and high-ranking Treasury officials engineered the mortgage credit bubble by keeping rates artificially low from 1996 onward during the so-called “strong dollar” regime.
“The Fed caused excessive and irresponsible lending in what became the sub-prime mortgage lending crisis,” Bolser told WND. “Regardless what anybody says today, the Fed knew violations were happening, and they encouraged risky and even fraudulent lending, with the result that now we have a bursting credit bubble of almost unimaginable size.”
Bolser said his hypothesis was that the Fed engineered the bursting of the credit bubble as Greenspan and current Federal Reserve Chairman Ben Bernanke began to raise rates, starting in June 2004 through a series of 16 rate increases, to a high of 5 percent in May 2006.
“I’m ready to conclude the Fed wanted the U.S. economy to fall into a recession, so as to control inflation,” Bolser said, “but all along the Fed craved anonymity in the process.”
The day on Wall Street began with an announcement by the Commerce Department that U.S. gross domestic product, or GDP, increased in the fourth quarter last year at the remarkably sluggish rate of 0.6 percent, down sharply from 4.9 percent in the prior three months.
Yesterday, the International Monetary Fund issued a major report dramatically downgrading world growth projections.
Buffeted by recent financial market turbulence and a weakening U.S. performance, the International Monetary Fund quarterly update for the world economy projected world growth would slow to 4.1 percent this year, down from an estimated 4.9 percent last year.
Last weekend, according to a report in the Financial Times, Dominique Strauss-Kahn, the managing director of the IMF, warned the World Economic Forum in Davos, Switzerland, that rate cuts alone would not be enough to stave off a severe recession that most likely would spill over into the global economy.
In a dramatic policy turnaround for the IMF, Strauss-Kahn told the Davos audience, “I don’t think we would get rid of the crisis with just monetary tools,” adding “a new fiscal policy is probably an accurate way to answer the question.”
In a Davos panel archived in a video on the IMF website, former U.S. Secretary of the Treasury Lawrence Summers, who served at the end of the Clinton administration, surprised the audience by agreeing with Strauss-Kahn that the proposed Bush administration stimulus package was needed to jump-start the U.S. economy.
Summers, who is considered the academic architect of the strong dollar-weak gold policy implemented by the Clinton administration, has achieved notoriety because of the tough way in which the IMF has tried to discipline countries implementing lax fiscal policies.
Strauss-Kahn and Summers are now arguing for fiscal stimulus in what can be seen as a criticism of the Greenspan-Bernanke policy of weak dollar/strong gold that has placed the world economy at the brink of a possible downturn.
“Ironically, the one-time tax refund the Bush administration is proposing as a fiscal stimulus amounts to offering a pittance to the U.S. public,” Bolser said, calling it a “move that is nothing more than media cover to make it appear the Bush administration is compassionate, when really it is not.”
Bolser argued that any stimulus to the Dow from today’s rate cut would be short-lived in a market being propelled downward by a worldwide asset crisis, not a liquidity crisis.
Editor’s note: The November issue of WND’s monthly Whistleblower magazine, titled “HOW GLOBALISM IS DESTROYING THE U.S. ECONOMY” – focuses exclusively on the future of the U.S. economy, and answers key questions like: “If inflation is so low, how come food and energy cost so much?” “What is the ‘housing bubble,’ and why did it burst?” “What’s really going on with the stock market?” “Is America heading into a recession?” “Will the dollar collapse in 2008?” and “What will happen to the price of gold?”