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The Fed cut the prime rate by 50 basis points to 4.75% and that led to a 337 point gain in the DOW today. We'll see how long that lasts though. I'm betting China begins to react to these horrible interest rates on their "investments" too.
Can we say inflation, for the short term? But this is not over yet. Credit remains tight, something that Don Sailorman over on the main TOD blog forgets was also true during the 1970s. Those 20% interest rates that tightened credit to nothing were coupled with 18% inflation rates.
You realize, of course, that the real crash came in 2001 with the end of the dot-com boom. What has happened since then are a series of maneuvers intended to stave off deflation, and they've worked to a degree. But go back and look at the first half of the 20th century. The 1907 panic was followed less than a decade later by global war. The 1929 stock market crash was followed a decade later by global war. The only reason this did not occur in 1987 was that the other side collapsed. So here we are again and its 2007. The clock is ticking while idiots on both sides rattle sabers louder and louder.
"The greatest shortcoming of the human race is our inability to understand the exponential function." -- Dr. Albert Bartlett
Into the Grey Zone
Capital flight is going to be a problem as is the devaluation of the dollar.
IMO the real story is Northern Rock. They want people to believe it is a contained bank run, but it isn't. They only have 4 or 5 bn in deposits and about 200 bn in the books.
The real story is that now their business model is fatally flawed because they can not borrow the short term money to carry the long term paper. Nothing to do with cost, it is because no one knows how good the paper is.
The bad news is that all the banks working on this model are in the same situation.
Which are the two sides now?
Peter.
The US, while at the center of much of the current shenanigans, could not even exist and Russia and China would still be making their plays for position with demonstrations of neutron weapons, anti-satellite weapons, threatening Taiwan, threatening Europe (via Kalingrad), etc.
The game goes on regardless. The rest of the world is not lily white pure innocent peaceniks. So if there was not a USA to rally against, they would rally against one another. This is all about jockeying for position.
If the US collapses economically and does a 1990s Russia, do you think that the other powers of the world will magically shake hands and get along? Communist China and Communist Russia couldn't get along when they both hated the US. And there are far more (and far older) sets of antagonists spread around the globe, even if the USA vanished tomorrow.
Anyway, I suppose I should have said "many sides" because there are dozens of players in this, each with distinct and not necessarily cooperative goals.
"The greatest shortcoming of the human race is our inability to understand the exponential function." -- Dr. Albert Bartlett
Into the Grey Zone