Posted by: Nick Poma | January 23, 2008

Something wicked this way comes, it’s the economy stupid

            The United States is falling into recession and the entire world will be feeling its effects. The Dow Jones Industrial has been sliding lately and it seems that no matter what the Fed tries it is just not working. The issues include a housing market, which is collapsing on itself and with the global markets losing confidence in the dollar it is just a matter of time before there is a complete meltdown.


             In recent months, it has been obvious that the economy was going to take a big hit and even though the Fed has been scrambling to stop the hemorrhaging, it is unfortunately like putting a band-aid on a sucking chest wound. The trouble is that the Fed must act cautiously when dealing with the economy while keeping investors from getting skittish.


            If the Fed acts too rashly, investors, as well as foreign governments may get scared and start moving their investments from the market, or even away from the dollar. An example of this happened today when the Fed unexpectedly cut interest rates. Nobody saw this cut coming and it spooked the market and resulted in the market dropping four hundred points this morning.


            It is the Fed’s hope that the markets will stabilize in a day or two which will buy a little time for the administration to pass through a stimulus plan. However, it is a scary situation when the government is trying to rush through an economic package to save the U.S. economy.


            I think the real question will be is how much our foreign investors are willing to lose while waiting for the economy to turn around before they move their currency to the ever-growing Euro. If those countries were to drop the dollar, it would be the end of the U.S. economy. Now, while I have heard many say that countries such as Saudi Arabia and China are too much invested in the dollar, they will only be willing to lose a certain amount before they move.


I guarantee you that these countries already have their limits set, just as any other investor does and if the market falls too much further, they are ready and willing to move. To many it has been clear that the economy was in trouble a long ago and with a federal deficit in the trillions, it was only a matter of time before it caught up to us.


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