This excellent commentary explains the real truth, and the real consequences, behind yesterday's rate cut. Every single person in this country needs to be aware of this situation.
Yesterday we closed at a historic low, and early indications today are even worse, at 21.20 The IRX, or yield on the 13 week T-Bill, is essentially zero.
One cannot argue one simple fact - Bernanke hasn't yet started buying the long end of the curve to any material degree. But he's been threatening, and today the FOMC statement made explicit what had been whispered before.
The mouth-breathers were all over CNBC and elsewhere yesterday and today claiming that this would "stabilize" the credit markets and make credit (and the economy) better, with the most outrageous displays of stupidity being put forth by Cramer and McCulley of PIM(p)CO.
Yeah, right.
Now let's take a more cynical, but realistic, view.
Remember last year. Oil went from $60 to $150 in the space of a few months. Why? Because it was no longer profitable to buy CDOs and RMBS, as they were imploding. The money has to go somewhere, and so traders bet in front of what they believed Bernanke would do - crank down interest rates at an insanely-accelerated rate, which would spike prices in commodities, as the economic slowdown had not yet occurred - and wouldn't for several months.
They were right. Bernanke did it, oil shot the moon and Goldman (and a few others) made a whole bunch of money.
Who paid?
You did, by paying $4/gallon for gasoline.
Now let's back up a bit. 2003, to be exact. What happened? Greenspan (and Bernanke) played the same sort of game and house prices went ballistic. A handful of people made fortunes securitizing various mortgage and other "assets" into complex (and opaque!) securities, foisting them off on the world.
Who paid?
You did, by overpaying by 20%, 50%, 100% or more for a house.
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