Psudo wrote:
Correct me if I'm wrong, but wasn't there a global stock market drop but a reversal in the USA? I don't watch the stock markets, but there was a mention of something like that on the CNN radio news.
Well here's what happened. Monday, data was released showing a slowdown in the US economy. Asian and European markets plummeted. The US market was closed due to MLK Day. At the start of Tuesday, the US market was 500 points lower. However, the Federal Reserve dropped interest rates (this is the rate the fed lends money to banks, then to you) by .75%. This is a huge drop and hasn't happened since the early 90s.
All and all, this made the dow drop only 150 points, then actually went up a bit, but Friday basically wiped out the gains of the week.
All in all, this was all done to midigate a US recession. The question seems to be not whether is will happen, but how long it will happen. The markets seemed to like the interest rate cuts, but alot of people(including myself) believe it is nothing but a "dead cat bounce" which mean the inevitable will happen. IE companies will have lower earning because the economy is slowing and investors will sell and put their money elseware.
That brings me to another point here. In previous recessions, the US consumer had a decent savings rate. As of now, we have a negative savings rate. The debt of the sub-prime and general spending will make interest rate cuts pointless. And additional money added to the economy will go straight to inflation (ie higher prices for food, energy, and commodities). The continuing rise in gold( a good indicator of when bad things are gonna happen) shows this.
And because of this, this will be a painful recession. The economy will have to go through painful corrections that have benn building up for the past 30 years. The savings rate needs to increase, the trade deficit needs to be lowered, and government spending needs to stop increasing.
The trade deficit will be the first to improve, followed by consumer savings, but the government spending is liable to get worse as politicions try to "fix" the economy (the emercency stimulus package for example. The 150 billion goes straight debt while being so small not to effect the broader economy).
CKA Elite 
Active Member 
