What are the chances the FED will actually cut rates?
Probably not good. One big problem; we are presently running a deficit. To fund the deficit without increasing M0(money supply-‘printing money’), treasuries have to be issued. The US savings rate is dismal, foreigners have been buying treasuries(see note below) which they are less inclined to do now. Who is going to pick up these treasuries if the rate of return is lower?
NOTE: Some of the treasuries (and other investments) have been picked up through carry trade with the Japanese currency. Get a Japanese loan and then buy a higher yielding security (treasury).. make money on the spread between yields, on money that is not yours.. — Japanese have been increasing their rates and the yen currency is getting stronger. This cuts down/off the number of treasury buyers using the carry trade.
Greenspan lowered the Fed funds rate to 1% to head off the recession from the nasdaq implosion and the aftermath of 9/11. As a result we created a huge housing bubble
The greatest cause of the bubble was not the lowering of the rates, but the use of “Wall-Street” financing which walks around the banking laws. Both the Fed and FDIC have little control over these guys. Rates started going up in 2003, but house prices peaked in 2006. If it was due to rates alone, house prices should have peaked in 2003. In fact, the largest percentage gains in house prices were between 2003 and 2006.
