The Fed Responds

Yesterday, we looked at the results of the large bailout of the crippled Bear Stearns investment bank by the Federal Reserve and JP Morgan Chase bank. Today, the Federal Open Market Committee meeting voted and lowered the federal funds rates to banks by 75 basis points down to 2.25% from 3.00%. This means the Fed is continuing to try and keep the economy moving by making credit more readily available for banks and businesses alike. The banks will find it easier to lend to businesses with a lower rate and in turn can open new loans with the deposit and interest payments made by the businesses.

This action taken by the Fed is in response to the deteriorating confidence in the US economy in general heightened by the possible insolvency of one of the oldest and historic investment bank of Bear Stearns. Economists the world over are concerned that we are on the brink of a world wide depression first started last summer by the sub prime mortgage meltdown. In August, 2007 many of the interest only mortgage loans began defaulting when the adjustable rate mortgages started going up. Since many of the mortgagees could not afford the increased payments due to the increased rates, thousands of people began to lose their homes when the banks started foreclosing on their mortgages.

This in turn, started liquidity problems for the banks. No longer were the mortgages an asset to the banks, but now were a liability because the banks can not hold real estate. With depressed real estate prices, the banks were running higher costs attempting to sell the houses on a depressed market, and not getting their monthly payments to add to their balance sheets. This cash flow shortage began to get the banks in danger of their reserve requirements of holding a percentage of assets in relation to their outstanding loans. Once the reserve requirement goes to low, they are forced to close their doors themselves and go out of business.

Later in the December of 2007 (see December 15, 2007 post from this blog), 5 major central banks of the world including the Federal Reserve, the Bank of England, and ECB of Europe allocated 114 billion to prop up distressed banks in light of the credit crunch. They did this to temporarily allow banks to borrow additional funds from the central banks to prevent the smaller banks failing themselves.

The good news in all of this is the Fed is not currently repeating the mistakes made in the first Great Depression that began in 1929. After the initial fall of the stock market in October, 1929, the Fed raised interest rates to 6% on November 1, 1929 making the liquidity problem at that time even worse. That constricted an already short money supply and caused the nation to sink deeply into the depression. That action then was by design to ultimately acquire more than two thirds of the farms of America and make the farmer tenants on their own lands.

Today's action is another temporary reprieve just like in December. However, I simply believe that things are escalating too fast for the timetables of those in control. They need to slow things down until their plans are in place. When the Fed begins raising rates again, that is the time to really watch out. I've received credible information that the international bankers will collapse the US economy in September 2008. This was linked to the closed door session of Congress last Thursday on March 14th, 2008, letting our policymakers in Washington know ahead of time. Whether this will hold true, only time will tell.

We as people of this country will have some hard times ahead of us. How we choose to respond will determine the fate of this once great nation. Will we go down and be sold out as Argentina and New Zealand did in the last decade, or we find a solution and not be sold to the interests of the World Bank and IMF? Again, only time will tell.

In this century's Great Depression, the aim will be different, but similar. Their aim this time will be grab as much residential and commercial real estate as possible. Once a majority of homeowners are renters again, their level of control will be even greater and they will have another piece of their plan in place.

Will we continue to stand by and let the dustbowls of depression consume us? Or will we demand change from the economic task maskers and slave traders? Choose your fate.

For they oppressed the poor and left them destitute.
They foreclosed on their homes.
They were always greedy and never satisfied.
Nothing remains of all the things they dreamed about.
Nothing is left after they finish gorging themselves.
Therefore, their prosperity will not endure. Job 20:19-21 (NLT)

If you have comments or questions, please feel free to contact me at the address below.
Email: DeltaInspire@panama-vo.com