This information while being the one of the most speculated upon by analyst everywhere is the most tightley controlled peice of information there is. Plus you get to See all the monkeys dance for a few days.

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Originally posted by sxjunky:
it's been rumored for a few weeks. I've been looking to buy a house so I've heard from a few in the banking industry that it might happen. plus i think it's a move to get the economy on track.

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I hate to break it to you, but the rate they dropped is only going to effect short term commercial loans. It's makeing it easier for banks to borrow money to make loans for cars, investments, personal, etc. Long term loans(30 year) are not effected by this, maybe some will trickle down, but most people misunderstand what is happening. Rates on home loans actually went up yesterday after the report came out.

In addition, if this type of information would have been leaked out, you would have seen a reaction in the market place before the announcement. If you have that type of information, you can be rich within an hour. Salomon Smith Barney, Merril Lynch or whoever would gladly pay huge sums of money for that type of info. They pay guys at those firms to sit at a PC all day and watch what the other firms are doing. A firm is easily identified on any market transaction. Since the market was dropping that day, nobody knew. If the market was in the red and suddenly Morgan Stanley issues buy orders in the millions, then other firms will start making phone calls and the selling of info begins. This did not happen, so nobody except the govenors and possible a handful of other people knew this.

It was anticipated that a rate cut was inevitable at the next Fed meeting, but not before. Hence the reaction.

-TG

People also misunderstand the mechanisms by which interest rates hikes/cuts are enacted. When rate cuts are announced, they don't just say, "okay, the Fed Funds rate is going to be [insert a rate]" That isn't how it works. Rate cuts and hikes are carried out by tightening and loosening credit with certain banks who buy and sell government bonds. ALL interest rates are controlled in this manner. An interest rate isn't something that somebody just sits down and decides to set at a certain point. The Fed has to actually pull a very finite amount of money out of the system (rate increase) or put a finite amount of liquidity (cash) into the system (a rate cut). This is a very complicated process, and yes home loans will fall after these transactions take place. They are usually carried out within six weeks of the announcement.

This is certainly not true. It is Alan Greenspan's influence which as helped us experience the greatest bull market this country has ever seen. And by the way, Greenspan isn't solely responsible for raising interest rates. The Governors must vote on rate increases and cuts. Only a majority can make that decision, Greenspan being the tie breaker. True, he can influence what other Governors vote for, but he is ultimately not solely responsible for what happens.

In addition, if you study economics you will be familiar with a concept known as sustainable growth. Greenspan is a strong believer in this theory. He, along with most economists, believe that the economy cannot grow at an accelerated pace for a prolonged amount of time. The reasons should be obvious. Every natural law applies to this theory. Prolonged accelerated growth almost always leads to very high rates of inflation, which breeds many other problems in itself. This country has always believed in sacrificing growth to keep prices stable. I tend to agree. What good is an economy if it is growing at an astrinomical rate, yet prices are rising even faster. Eventually you will reach a point at which your purchasing power declines, even in the face of a red hot economy. Greenspan decided to slow the growth of the economy from an unsustainable 6.0% to a more realistic 2.5-3.0%. This has historically yielded the best ratios of economic data.

More over, the huge increase in energy prices was unanticipated when the rate hikes were being voted on. The rise in energy costs has increased the effectiveness of the rate hikes far beyond what anybody expected. Since oil has historically traded at around $20-$25 per barrel, when it went to $34 per barrel, it trickled through the economy, eventually eroding purchasing power and consumer confidence. Had it not been for the steep increase in oil prices, the rate cuts would have served their purpose as intended, and everything would have been fine. However, when energy prices are in the hands of OPEC, it is very hard to predict anything.

Greenspan has done an excellent job as our Fed Chief.

-TG

No flame bro, but I do indeed study economics - but the Austrian Cycle theory. And I just want you to know that all that crap is bogus.

The main thing is Inflation. Not many people truly know what inflation is. Simple: Inflation can only be achieved by injecting more paper dollars into our money supply. The government prints money (unconstitutionally) and keeps it to spend on their own projects. The problem with this is that for each dollar they print the less OUR (you and I) dollars are worth. It is supply and demand..ie Diamonds are worth a lot b/c they are RARE. If suddenly I found a mine will 2 million tons of 3 carrot diamonds in it - the price of diamonds would fall dramatically.

I do agree with Greenspan not being in control of the show however. You're right about that, but you must say that he does have influence on it. The government should stay out of the economy - period.

"Inflation can only be achieved by injecting more paper dollars into our money supply."

I wish it were that simple. Inflation is just a word used to describe price increases across a broad category of goods and services. I'm sorry to inform you, but injecting money isn't the only way inflation can begin. A tight labor market results in per hour wage inflation. Oil shocks result in inflation since petroleum is contained in over 300 products on the market. A hot dry summer can cause inflation in food prices due to reduced crop yields. The list goes on and on. Oh and by the way, grab a paper and pay attention to M1 and M2 figures(I won't bother explaining what these are). They have been going down for some time. Facts are facts.

-TG

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Originally posted by The Ghost:
I am well aware of the concepts of supply and demand. LOL...thanks.

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Sorry bro! I didn't mean to be speaking down to you, just got carried away! No offense.

I think you bring up good points, the same points politicians use so they can justify printing more money. Remember the Gold Standard? That kept inflation in check b/c at any moment people could come in and trade their IOUs (dollars) in for gold. The gov realized they could not print money for themselves if the gold standard was not abolished. What did they do? Abolish it so they can print money at will, which is pretty much what they have done.

We'll just have to agree to disagree on this one, but again I apologize for talking down to ya!