The Federal Open Market Committee announced prior to today’s market open that it had lowered its federal funds target by three-quarters of a percent, or 75 basis points, to 3.50%. This certainly feels like the house extending a drunk casino patron more credit after they’ve already burned through their last two extensions. The Fed forestalls the inevitable…
Anyways, naturally the dollar continues its slide. Although no matter how low it goes, it’s still cheaper to manufacture products in China or provide services in India. One also has to wonder how long the Chinese will continue to subsidize the United States with its willingness to plow the dollars sent its way back into US government debt; thereby, helping to keep interest rates low. For how long will the Chinese government be able or willing to continue this arrangement? Yes, it has brought tremendous growth to the Chinese economy. But at some point one would have to think that the Chinese people will have had enough of the fruits of their labor not being reinvested in their own homeland.
The American consumer now stands on the precipice. Saddled by debt, their home values in decline, and now their equity market wealth slowly disappearing. Not to mention that the vast majority of their assets are in…dollars.
It’s also interesting to note that the Fed seems almost entirely focused on making life easier for Wall Street. Of course, given that Main Street’s fortunes are so closely tied to it, perhaps it’s not that surprising.