I recently read an article saying that the fed may not be able to raise interest rates because it is lending various "wall street" investment institutions money in attempt to stabilize the market.
Specifically, the article states:
"The Fed opened its window to investment banks in March after the
near-bankruptcy of Bear Stearns, which sold for cheap to JPMorgan Chase
(JPM), in
an effort to keep markets calm. The decision to make Fed loans
available to a group of institutions that include Lehman Bros. (LEH), Merrill Lynch (MER), Morgan Stanley (MS), and Goldman Sachs (GS),
was highly unusual. The Fed had traditionally provided loans to
commercial banks but not investment banks. New York Fed President
Timothy Geithner said in early June that as long as markets were
distressed, the emergency measure would remain in place. However, part
of the Fed’s plan to keep the economy on track has meant maintaining
low interest rates. With energy and food prices rising fast, inflation
has become a serious concern and some economists think it’s time to
raise interest rates."
http://dailybriefing.blogs.fortune.cnn.com/2008/07/08/wall-street-loans-mean-no-rate-hikes/
It raises questions in my own mind about where all of these various investment firms are investing this money as they deal in futures including oil futures. I am uncertain how much funding the fed has provided these firms or if it will stop lending any to them anytime in the near future; but who's to say these firms arnt using the fed funds to invest in oil futures...if this is the case, then the fed is funding the cause of our own oil crisis.
The other problem i have is that because the fed is now involved in lending money to "wall street" the article says that a interest rate hike to keep inflation in check is unlikely. Meaning; if the fed had not funded these investment firms, it would hike interest rates so as to keep the dollar stronger (a stronger dollar also lesson the cost of oil)..
My main overall concern is that the fed should not be involved at all with funding wall street especially when such funding begins to influence fed policies in manner which leads to devaluation of the dollar..ie-if fed increased interest rates; it would lead to a stronger dollar...but article says due to the lending to wall street; fed may not raise rates ---meaning weaker dollar.
Independent of the oil speculation issue, the fed should not be involved with funding wall street at all..
Anybody else have a problem with this
