[smallpoxgirl]

Breaking news. The fed has cut it's rate target to from 0 to 0.25%.

http://www.bloomberg.com/apps/news?pid= ... refer=home

"The Fed is sending a message that it will print money to an unlimited extent until it starts to see the economy expanding,” William Poole, former president of the St. Louis Fed and now a senior fellow at the Cato Institute in Washington, said in an interview with Bloomberg Television.

[RedStateGreen]

That's sure to get people buying T-bills now!

[Snowrunner]

This is interesting:

ECB President Jean-Claude Trichet said yesterday there’s a limit to how far the bank can cut interest rates and signaled policy makers may pause in January. “Do we have a feeling there is a limit to the decrease in rates? At this stage certainly yes,” Trichet told journalists in Frankfurt.

While the Fed can’t push interest rates below zero, “the second arrow in the Federal Reserve’s quiver -- the provision of liquidity -- remains effective,” Bernanke said in a Dec. 1 speech.

Essentially the US is now left with printing money, those effects will be hidden until the Deflation cycle is over, what? A year, two out? After that all that money will be rushing back in and you may just end up with Hyperinflation.

Charming.

*Checks expiry date on EU passport*

[smallpoxgirl]

Apparently one of the strategy items the fed announced today was that it was going to start buying up some of the massive numbers of T-Bills it's unleashed on the market in the last few months. They want to try to force that money into commercial credit markets.

The problem there is that it will drive T-Bill yields up and basically puts the Fed and the Treasury at crossed purposes.

[vaseline2008]

As soon as the news broke out, gold went up another $5/oz (it was up around $10 for the session), anyone know the rational behind this?

[smallpoxgirl]

As soon as the news broke out, gold went up another $5/oz (it was up around $10 for the session), anyone know the rational behind this?

Yeah. The dollar plunged big time.

[Dreamtwister]

I think it pretty much summed up the situation when that guy from Zimbabwe was applauding the Fed's actions.

[Nickel]

*Checks expiry date on EU passport*

Mine's good for three more years; see you over there?

[Nickel]

As soon as the news broke out, gold went up another $5/oz (it was up around $10 for the session), anyone know the rational behind this?

Yeah. The dollar plunged big time.

Yeah, before I went to lunch, the currency ticker on my desktop said $1 CDN=81.8¢ US. It's up a full cent since then. What happened, did George Washington rise up and demand they take his picture off or something?

[Snowrunner]

*Checks expiry date on EU passport*

Mine's good for three more years; see you over there?

2014 for me, of course fitting timing considering that it looks like Immigration on this end is finally coming through.

Ah well.... May you live in interesting times and all that jazz.

Now they better quickly fill in the tunnel before the Brits realize they are living on an Island.

[smallpoxgirl]

Yeah, before I went to lunch, the currency ticker on my desktop said $1 CDN=81.8¢ US. It's up a full cent since then. What happened, did George Washington rise up and demand they take his picture off or something?

The dollar has been falling for a week or two. It dropped today on the rate cut announcement. Lower interest rates in a particular country tend to drive down the country's currency. It's a disincentive toward investing money in that country.

[Nickel]

*Checks expiry date on EU passport*

Mine's good for three more years; see you over there?

2014 for me, of course fitting timing considering that it looks like Immigration on this end is finally coming through.

Oh, I thought you were one of us.

[Snowrunner]

Oh, I thought you were one of us.

Only in the sense of "Taxation without Representation".

See, I am a politicians best friend, I pay my taxes but don't have a say.

[CarlosFerreira]

Yeah, before I went to lunch, the currency ticker on my desktop said $1 CDN=81.8¢ US. It's up a full cent since then. What happened, did George Washington rise up and demand they take his picture off or something?

The dollar has been falling for a week or two. It dropped today on the rate cut announcement. Lower interest rates in a particular country tend to drive down the country's currency. It's a disincentive toward investing money in that country.

Right. Since the UK dropped their rate below the ECB rate, the pound has been consistently losing ground.

OK, they've hit the floor. No price charged for money, it's all your to take.

Why doesn't this solve the problem? I remember hearing the Japanese did the same back in the 1990's and it didn't solve their problem either.

[GoghGoner]

I remember reading some analysis that part of the oil price plunge was do to money moving into the U.S. dollar. I would think if this analysis was correct we should be seeing some significant oil price gains in the next week. It seems like gold has already went up.

[emersonbiggins]

Wasn't the consensus that a cut to 0% is pretty much the final bullet in the Fed's pistol?

[Snowrunner]

I remember reading some analysis that part of the oil price plunge was do to money moving into the U.S. dollar. I would think if this analysis was correct we should be seeing some significant oil price gains in the next week. It seems like gold has already went up.

Not necessarily. People buy gold to put aside as a "storage" device for wealth, it isn't a commodity in the real sense of the word.

Oil on the other hand depends on someone being able to sell / use it, hardly anybody will go and bunker billions of barrels of oil as "wealth storage".

Oil will move independently from gold based solely on the economic outlook, it MAY rise relative to the USD if the bottom falls out from under it, but I don't expect the Dollar to go that route for at least another three months. Once the USD start flowing back into the markets you'll see it go down hard though.

[smallpoxgirl]

Wasn't the consensus that a cut to 0% is pretty much the final bullet in the Fed's pistol?

Yeah. Kinda odd that they pull it out now. You kinda wonder what they know that we don't.

[DJSNOLA]

Great point SPG. You would think they would wait until the market starts Wave 5. Maybe their hoping to get as big of a wave 4 up as possible ? I think that is why as the market started to have time to think about the rate cut it started fidgeting. Maybe traders were thinking this might actually be indicative of how bad things will be! Also has the rate ever been 0 before?

[smallpoxgirl]

Also has the rate ever been 0 before?

Not here. It was in Japan for a long time.

You really would think they would have worked on other stuff like buying up corporate bonds and T-Bills and saved that last 1 point cut for a rainy day. I'm also pretty surprised they cut the whole point at once rather than 0.5 twice. I think probably part of the reason why the cut now was that because of other aspects of their operation, they were having trouble keeping the funds rate up to their target of 1%. I don't completely understand how that works. Need to read more I guess.

There's a 16 page booklet on fed open market operation here if anyone's interested:
http://www.federalreserve.gov/pubs/bull ... 11lead.pdf