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« Gold: Turbo Driven Spikes! | Main | Rate Cut Brings Light Relief, But! »

How Far Will The Fed Go?

In the Federal Reserve meeting this week, we will almost certainly see another interest rate cut of at least 25 basis points, with the more likely option being a cut of 50 basis points. This will give stocks across the board another boost and deal another blow to the US dollar.

How Far Will The Fed Go

The majority of investors know that Ben Bernanke intends to continue to cut rates as much as he can to try and prevent a recession in America. However what is not known yet is just how far the Fed will go in their rate cutting policy.

Are rates heading to zero? Is Bernanke going to follow the policy of Japan when times get hard?

Ben Bernanke believes that the great depression of the 1930's could have been prevented if the Federal Reserve had lowered interest rates faster and more dramatically. Therefore this is what he is trying to do at the moment, cut rates sharply and fast and all will be well. Will it?

Every time the Fed cuts rates, all it provides is another shot in the arm for the financial markets before they begin to tire again. Giving the markets a shot in the arm will not stop their eventual collapse, but simply make the eventual collapse worse. Plus, with every shot in the arm that the Fed gives, these “shots” become less effective. For example, the market has already fully priced in a quarter point cut for this week therefore Bernanke has to cut about half a point to make any difference at all. So a quarter point cut has lost its power, in other words, the market is now almost immune to quarter point cuts!

This raises the question, how long will it be before a half point cut is priced in before the meeting, and the markets become immune to half point cuts?

Another important question is; just how low can interest rates go?

Japan took rate cuts as far as they could go when the Japanese Central Bank basically cut rates all the way to zero and Bernanke could of course do the same. However if inflation is at say 3%, once the rate falls below that it loses its effectiveness. After all, nobody is going to lend money at 2% if it is losing value at 3%. Or are they? Perhaps the Fed will in fact do something that ridiculous and lend money to banks below the rate of inflation, just to keep the banks from going bust. But are the banks going to lend that money at a rate below the rate of inflation? We don't think so somehow. Therefore rate cuts below this level will not benefit consumers as banks will not lower their interest rates below the rate of inflation. So that means no more help for home-owners struggling with mortgage payments, but plenty of help for the large financial institutions that made countless bad loans in a reckless pursuit of larger profits. Although this strategy appears to us to be utterly ridiculous, the decisions that the Fed has made so far are of the same calibre.

The founder of the Rothschild family banking empire, Mayer Amschel Rothschild, once said, “Give me control of a nation's money and I care not who makes her laws.” It is a shame that with all the attention on the US Presidential Nominations, little attention is being paid to the pure incompetence of this unelected committee called the Federal Reserve, which arguably holds more power than the government itself. We are sad to say that we see many further rate cuts coming in from the Fed as they try to steer the US economy away from a severe recession. These rate cuts and “money creation” are in fact making the situation worse and will make this recession all the more severe when it hits home as well as crushing what once was the greatest currency in the world.

Backed by all this economic turmoil and a dollar collapse, gold prices will rise dramatically way past $1000/ounce and over the next few years we will see gold prices of over $2000. This of course will send our quality gold stocks rocketing and so if you want to stay updated on which gold stocks we are buying then subscribe to our Gold Prices Newsletter, totally FREE of charge. All you have to do is click here and enter your email address to receive our updates.

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Reader Comments (3)

You state: "Although this strategy appears to us to be utterly ridiculous, the decisions that the Fed has made so far are of the same calibre." What makes you so sure? It all depends, doesn't it, on their "end game", what they hope to accomplish. Yes, it has been ridiculously stupid to the nth degree, in terms of benefitting the American people, esp the working class, since it is M3 that has been increased out the wazoo, not M2 or M1 that actually ends up (some part of it) in the hands of the working class and consumers. You think they don't know that?

How about a different scenario? How about one in which their policies actually DO bring about the downfall of this once great democratic republic. Now who would THAT benefit? None other than those who for decades (and actually centuries) have pursued OneWorldGovt. Why would bankers want that. Well, if you remember that the bankers are actually simply unbelievably wealthy families, by and large, then sovereignties stand in their way. Several of these families have so much money, they could literally BUY countries. But, sovereignty stands in their way--intl trade is controlled by the govt, for instance. So these bankers hopes are that in a OneWorldGovt they'd be the bankers with NO sovereign lines to hinder their dealings and power. IE, the collapse of really the last great sovereign republic would be the last domino of their plan falling right into place. IMO...they may have succeeded. (Ron Paul is the ONLY candidate who sees the problems for what they are and has proposed ANYTHING to fix them.)

Think about it. And BTW, if you think the OneWorldGovt movement is just so much "conspiracy theory" I'd suggest reading the Charter of the CFR, of which as I recall David Rockefeller was the Founding Chairman (or one of the early ones). jt

January 28, 2008 | Unregistered Commenterjt

Great comment there jt, thank you.
The Fed's "end game" could indeed have nothing to do with helping the American people, perhaps their only goal is to bailout the banks in which case they are going the right way about it. We made the optimistic presumption that the Fed was trying to help the American people, but they dont understand the damage it is doing. However they could fully understand what is going on and actually not be planning on helping the American people at all.
Whether the "banking families" are trying to bring down the USA in an attempt for OneWorldGovt, we are not too sure. Most banks have done extremely well in America and thrive on its free market policies. However we do agree on Ron Paul, who we think has talked more sense than all the other candidates combined.

January 28, 2008 | Unregistered CommenterGold Prices


Love what you do...and you should know that the Fed is being challenged here by Congressman Ron Paul, so your observation below is a little off base.

It is a shame that with all the attention on the US Presidential Nominations, little attention is being paid to the pure incompetence of this unelected committee called the Federal Reserve, which arguably holds more power than the government itself.

Dr. Paul has made abolishing the Fed a centerpiece of his campaign. It's a big reason why he's been marginalized by the media and the establishment here in the U.S., but he gets a wildly enthusiastic response from his audiences, especially college students, when he talks about the Fed and the need to abolish it. I've seen him speak 3 times live and was astonished the first times I heard the explosion from the crowd and just pleased the second and third time that the response was so consistent.

He has no chance to "win," but he is being heard and well supported financially by tens of thousands of individual donors. It's the first hopeful sign in a long time for those of us who consider the Fed an abomination.

Jim Cramer on CNBC also rails against the Fed every night on his show, although he wants a competent Fed. Those of us who support Dr. Paul want no Fed.

Thanks for all you do.

January 29, 2008 | Unregistered CommenterTW

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