> The Federal Reserve just cut its target for the fed funds rate by 0.25
> percentage points, and lowered the discount rate by the same amount. The
> Dow is up 250 points as I type, with financial stocks strong. That doesn't
> mean that people in Thailand will be trading their dinners of tree bark for
> ones of chicken in green curry sauce anytime soon, of course. Nor does it
> mean that the U.S. stock market will turn in 25% annual returns for the
> next decade. But I'm starting to think the worst of the world financial
> crisis may be over. Not certain by any means, but leaning in that direction.
>
> Doug
I think the key variable which is unknown is the Japanese situation. However, here too there is positive evidence, Japan is apparently spending 1/2 a trillion + dollars to bail their banks out and taking more "leadership" in their "sphere of influence". Should the Japanese patch their problems, most SE Asia will not effect our economy in our neck of the woods. As was pointed out they don't seem to have enough unemployment to produce major social problems internally. There is a former graduate student in our department working in a Fast Magnetic Resonance Imaging Group in Japan. I asked if he could see any signs of unemployment from where he was in Tokyo. He said no. The yen should now appreciate further against the dollar and of course Japanese exports to the US will be hurt by this although I saw a small move as a result of the interest rate rise. There is still enough of an interest rate premium to expect major outflows from Japanese and say Taiwanese Central Banks
No doubt the Japanese government will be pissed. The net effect may be to impose further capital controls in SE Asia and in the long run a currency like the Euro. I think this is all to the good at this point in history and maybe even in Thailand. American short term money and IMF bailouts are probably worse for the countries involved than straight default.
In a year or so, I think I found out on this list Toyota will be selling in US and possibly around the world a 66 mile / gallon combination electric gas car with about the size of US automobiles. I have heard sources saying that they cannot meet demand for their products at this time in Japan. Given the Japanese engineering acumen, to whom we owe DATs, VCR's, Camcorders, Compact Disks etc., I find them hard to write off even if they have experienced a few years of negative growth and financial difficulties.
Its nice to see the Fed drop the interest rates .5% in a short period in the midst of near full employment. LTCM I know has already spent 1/2 of their bailout money and the Fed must be scared about something. Do you know the last time the discount rate was 4.75% and the Federal Funds rate was 5%. They report Labor markets as being tight. Its nice to see this executive committee of the ruling class as so scared.
--mike -- Michael Cohen mike at cns.bu.edu Work: 677 Beacon, Street, Rm313 Boston, Mass 02115 Home: 25 Stearns Rd, #3 Brookline, Mass 02146 Tel-Work: 617-353-9484 Tel-Home:617-734-8828 Tel-FAX:617-353-7755