Statement on Federal Reserve Rate Cut

October 31, 2007
For immediate release

Washington, DC - Congressman Ron Paul, ranking member of the Subcommittee on Domestic and International Monetary Policy (DIMP), and a nationally recognized expert on monetary policy, issued the following statement regarding the Federal Reserve’s decision to again lower interest rates:

“ America ’s economic difficulties, especially the problems in the housing market, are the direct result of the Federal Reserve’s inflationary policies. In the past year, we have seen MZM grow by 12%, yet the Fed continues to inflate the money supply. While prices for gold, oil, and staple commodities continue to rise, the purchasing power of the dollar for all Americans continues to fall. Inflationary monetary policies created the problems in the economy we are seeing, and these problems will be made worse, not better, by more inflation. Today’s action by the Fed is very bad news for American workers and retirees who are about to get hit with yet another jump in prices.

Make no mistake, the problems faced by the American people are not caused by unscrupulous mortgage brokers or the rising price of oil. These are symptoms of an economic disease caused by a spendthrift Congress enabled by loose monetary policy. Too many pundits praise the weak dollar as benefiting exporters, but they fail to see the harm done to thrifty, hard-working Americans. Rather than continuing to pursue a policy of easy credit and increasing debt, we need to return to a sound monetary system.”

http://www.house.gov/paul/press/press2007/pr103107.htm

U.S. Fed's impact on home prices in doubt

By David Leonhardt
Published: September 19, 2007

NEW YORK: The U.S. Federal Reserve has sent the stock market soaring. So can it stop the decline in home prices, too?
Don't count on it. And that is bad news for the global economy, which heavily depends on the U.S. consumer.

From the late 1960s until 2000, the price of the typical American home and the income of the typical family moved almost in lockstep. House prices rose a bit more quickly than incomes during the occasional real estate boom, but would always settle down again. In 2000, the median home cost about $130,000, roughly three times the typical household income - almost precisely the ratio that had held since the '60s.

Then came a real estate boom unlike any before it. By last year, this ratio of prices to incomes had suddenly shot up to four and a half. For it to return to its old level, home prices would have to fall by an almost unthinkable one-third, and probably more in California, Florida and the Northeast.

http://www.iht.com/articles/2007/09/19/business/leonhardt.php

Housing Cartoon

Cute housing cartoon:

http://www.salon.com/comics/tomo/2007/09/10/tomo/

The Financial Big One Hit

This is one of the best explanations of why lowering the interest rate would be extremely bad for the United States. There are lots of technical articles, but this one is easily understood.

http://www.oftwominds.com/blog.html

The Big One Just Hit
September 8, 2007

Here in California we refer to the next catastrophic earthquake as The Big One--not a modest little 7.0 temblor like Loma Prieta in 1989, but a massive 8.0+ quake like the 1906 event which devastated San Francisco.

The financial Big One hit today. Though the markets are still standing, the apparently modest damage is illusory--deep inside, the supports have broken. Over the next few weeks, we will witness a seemingly sound structure start collapsing under its own weight--the global house of structured debt. Though to the naked eye it seemed to have survived today's modest financial quake, reverberating shock waves will soon bring it down.

Let's start with a chart of the U.S. dollar index. The mainstream media is full of stories about the Federal Reserve cutting rates, but the bigger story--the fall of the dollar below the multi-decade support level of 80--was barely mentioned.

Fed bends rules to help two big banks

http://money.cnn.com/2007/08/24/magazines/fortune/eavis_citigroup.fortune/index.htm?source=yahoo_quote

If the Federal Reserve is waiving a fundamental principle in banking regulation, the credit crunch must still be sapping the strength of America's biggest banks. Fortune's Peter Eavis documents an unusual Fed move.

By Peter Eavis, Fortune writer
August 24 2007: 5:09 PM EDT

NEW YORK (Fortune) -- In a clear sign that the credit crunch is still affecting the nation's largest financial institutions, the Federal Reserve agreed this week to bend key banking regulations to help out Citigroup (Charts, Fortune 500) and Bank of America (Charts, Fortune 500), according to documents posted Friday on the Fed's web site.
The Aug. 20 letters from the Fed to Citigroup and Bank of America state that the Fed, which regulates large parts of the U.S. financial system, has agreed to exempt both banks from rules that effectively limit the amount of lending that their federally-insured banks can do with their brokerage affiliates. The exemption, which is temporary, means, for example, that Citigroup's Citibank entity can substantially increase funding to Citigroup Global Markets, its brokerage subsidiary. Citigroup and Bank of America requested the exemptions, according to the letters, to provide liquidity to those holding mortgage loans, mortgage-backed securities, and other securities.

The Dow and the Federal Reserve Bank

The Dow dropped below 13000 this morning and the Fed pumped 7 Billion in. It helped for a few minutes and then it went back down.

Marketwatch
http://www.marketwatch.com/tools/marketsummary/

Here is an interesting site. You can see the open market operations from the Fed. If you go to the bottom of the page and click the link, you can get the last 25 operations.

http://www.ny.frb.org/markets/omo/dmm/temp.cfm