If it wasn’t clear before that Wall Street owns the Federal Reserve Bank, it was made clear today.
A jubilant Wall Street barreled higher Wednesday after the Federal Reserve cut its benchmark interest rate by a larger-than-expected half a percentage point.
I consider this move the result of the short-sighted approach that Wall Street favors in spite of its detrimental effects to the economy’s long-term health. In reality, a cut was probably needed to show everyone that the Fed will take action when required to prevent a complete economic meltdown, such as another Great Depression. However, I think this big cut may prove to be very short-sighted because the already weak and flailing dollar is now worth less than it had been. This rate cut should be slightly helpful for ARM mortgage holders whose rates reset next month, but I doubt the cuts will improve the overall economy in the long-run and, despite the Fed’s efforts, many ARM holders will not be helped in the long-run because home prices are already decreasing.
In the long-run, a strong and healthy dollar is better for the US economy than avoiding a cyclical trend called a recession. Avoiding a recession now may only make the next one worse. The Fed should bite the bullet and tell Congress what it is probably thinking, that account deficits and high amounts of US currency held by other countries’ central banks (in the trillions of dollars) are a bigger problem in the future. It is time to either raise taxes or cut services, or both, to pay off the national debt. Otherwise, the Great Depression may recur and we’ll be stuck play the role of the Weimar Republic with absolutely worthless currency.
Today’s move also reminds me of M.B.A.’s telling a friend of mine that revenue was more important than profit, even in a product with profit margins over 80%. Maybe I’m dense, but I don’t see how revenue is a better or more important statistic than profit margin that puts money in the bank and that can be re-invested back into the company. But then again, that’s part of the attitude that prevails in Wall Street and runs our federal monetary policies.