Economics Update

Any time that the Fed cuts rates, it's the lead economic story, and today the Federal Reserve huts its discount rate by 75 basis points to 2.25%.

There is not a whole bunch left for the Fed to do. At the rate that they have been cutting this year, they will be at zero some time in July.

We are in a pickle, and Paul Krugman is right when he says that at best we are almost in a liquidity trap, if we aren't already there. The Fed cutting rates has very little effect on interest rates for the rest of the economy right now.

As a result of the rate cuts, and the inflationary pressures involved, Oil appears to be heading back up.

Additionally, low interest rates tend to push the dollar down. The dollar spent most of today above $1.58:€1.00, though it's now strengthened to a bit less than $1.57, about 1% below the all time low of $1.5904:€1.0000 reached on Monday.


Our economy in 1000 words.

Of course the real economy, the one that most of not on Wall Street live in, had a few statistics too, with Industrial output dropping 0.5% in February and inflation on the move, with the core producer price index increasing by 0.5% in February.

And it's not just our economy, it's both pillars of "Anglo-Saxon Hypercapitalism", with banks the Bank of England's emergency 3 day loans totalling £5 billion obeing oversubscribed by almost 500%.

It also looks like Lehman may be the next brokerage to have to deal with a run on its accounts. It's shares were down 39% in early trading Monday, though it had largely recovered today.

One source of revenue for the various financial houses, private equity buyouts and other forms of leveraged merger and acquistion activity, appear to be drying up. No one wants to lend right now.

It probably does not help that we have it looks like a new star is born in the ppathetic theater that is the monoliner insurance debacle, FGIC, which posted a $1.89 billion loss. If people cannot trust the insurers to pay off if you default, then maybe they don't want to fund your ill conceived takeover scheme.

This applies to foreigners, who not only are not interested in investing in American businesses, but are avoiding what used to be the safe haven of US Treasuries.

Finally, housing starts hit a 17 year low, though the article optimistically states that it is "above forecast".

A pox on economic reporters. A little truth a little earlier, and perhaps housing starts would not be the lowest since Poppy Bush was in the White House.