Bernanke and Co. Pulling Out All The Stops

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The Federal Reserve has just announced that the federal funds rate will now range from 0-.25%.  The federal funds rate governs the interest that banks charge each other.  It now stands at its lowest rate in over 50 years.  Despite claims to the contrary, the initial bailout has not had any real tangible effect on the economy.

With these lowered interest rates, the Federal Reserve acknowledged that even more drastic steps are required to get the economy back on track.  Every indicator of consumer confidence, pricing, and spending is experiencing historic lows.  Banks are too scared to lend money, while most consumers are simply not spending.  The ensuing cash crunch is creating a negative cyclical feedback loop.

Some economists argue that lowering the federal funds rate increases interest on debt payments, thereby exacerbating already bad conditions.  All things considered, since the Fed has lowered the federal funds previously, this decrease will be praised more for its psychological impact on the economy.

Bernanke is demonstrating that although they don’t really have any idea how to fix the economy, they are committed to do anything in their power to bring us out of this recession.  Corporations and individuals should follow the Federal Reserve’s actions very carefully.

Because of pressure from Congress, President-Elect Obama, and the worsening economy, you can expect a series of unexpected measures designed to jump-start the economy.

For the savvy investor or entrepreneur, this could create a vast array of valuable opportunities.  It is obvious that the traditional ways of jump-starting the economy are ineffectual at best.  Truly, this is a brave new world.

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