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 Why The Fed Should Not Cut Interest Rates

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Number of posts : 440
Registration date : 2007-07-01

PostSubject: Why The Fed Should Not Cut Interest Rates   Tue Oct 30, 2007 2:42 pm

As many of you know, the Federal Reserve may very well slash interest rates this week. With a weak dollar and oil nearing $100/bbl, many economic policy critics including Jim Rogers have said Bernanke should not be slashing the federal funds rate. Personally I have many problems with the Federal Reserve and have many of the same views as Rogers.According to Rogers, it makes absolutely no sense for the Fed to
lower the interest rate. With a rate cut, the dollar would tank even
more and oil could easily top $100/bbl and inflation could potentially
get out of control. Rogers also has argued that the United States may
very well already be in recession. He said the housing and auto
industries are already in conditions worse then a typical recession.
Even big Dow Components such as Caterpillar (CAT), have said business hasnít been this bad in fifty years.Rogers also claims that while a lower dollar does mean higher
exports and probably a cut in the trade deficit short term, it would
hurt us in the mid/long term. Historically no country has ever been
successful mid/long term devaluing their currency. There is nothing
wrong with keeping interest rates steady, even if it means driving the
United States into recession (assuming we arenít already in one). Itís
a normal part of the business cycle. If you keep trying to bandage
short term fixes, there will be many more negative long term effects.
He also referred to Fort Knox,
saying there gold would only be able to prop up the currency for maybe
two days and our Treasury Reserve of 60 billion dollars would last
about five seconds.Who knows what will happen in the long term, but if we keep
going down this road we will undoubtedly have high oil prices, a
terrible currency, a potential run on the dollar, and even
hyperinflation. By not lowering interest rates and giving into short
term greed, we help reduce the risk of high interest rates further down
the road.
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