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How to stop a crash by US Federal Reserve

Discussion in 'Shares' started by AsxBroker, 23rd Jan, 2008.

  1. AsxBroker

    AsxBroker Well-Known Member

    8th Sep, 2007
    Sydney, NSW
    Hi everyone,

    The Fed Reserve hit the brakes on the market stopping it from free-falling, dropping the US Official interest rates from 4.25% to 3.5% overnight (making the stockmarkets a more enticing place to invest).

    Should they have hit the big red PANIC button?

    Certainly this will stimulate the US economy, whether it stimulates off the knife dege of a recession only time will tell.

    In our own backyard we have the reverse of a recession, a highly stimulated economy and everyone is spending, our Prime Minister wants to get us to save (smart man) though he's coming up with all sorts of ideas (First Home Savings Accounts [good for votes], cutting Medicare [not so good for votes] and having less tax brackets [good for high earner votes]).

    Any guesses on what's going to happen in our economy?


  2. Rob G.

    Rob G. Well-Known Member

    6th Jun, 2007
    Melbourne, VIC
    Seeing as there are only two main sources to our GDP (i.e. the money sloshing around):

    1) Debt sucked out of all households and businesses

    2) Real money coming from commodies exports

    I think interest rates will stifle (1) and we are then wholly dependent on worldwide demand for our resources.

    The danger is whether the US economy collapse contaminates our other major trading partners and reduces demand for commodities worldwide.


  3. Temjin

    Temjin Active Member

    22nd Jan, 2008
    That is always the trillion dollar question. :)

    Decoupling theory or not. We wouldn't really know until US really goes into a hard recession or worse, depression.

    One thing is certain, the interest rate cut stimulus will be short lived.
  4. Billv

    Billv Getting there

    15th Jul, 2007
    Sydney, NSW
    I agree, the US problems are still there so IMHO the worst is not over yet.
  5. bdang007

    bdang007 Member

    28th May, 2007
    Sydney, NSW
    Is our economy dependent on the US's economy so much that when there is a hickup that our economy will also have a small hickup? - i thought our economy is not that much dependent on US's economy.
    My opinion is that Australia's stock investors are over reacting to what is happening in America and there is some panic among investors - institution and private.
    Bargain hunters - get your shoes on!!
  6. Property WA

    Property WA Active Member

    31st Jul, 2007
    Perth, WA
    I think the problem is more so a perceived and historical economic relationship rather than set one. Unfortunately the stock markets driven by sentiment as much as anything else.

    The other problem, as Rob G pointed out, is how intwind the US is with our trading partners. Our economies being driven by resource export to (largely) China. The US is the number one buyer of Chinese goods. If they stop buying and China slows or stops producing that may lead to a slowdown here.

    Also, I think, alot of growth has been built into US and Aussie Shares - if there's no credit to fund the ambitious ambitions...could see further retractions
  7. The Stig

    The Stig Well-Known Member

    3rd Dec, 2007
    Central Coast NSW
    The RBA want it to slow down, so it will keep raising rates to slow it down until inflation makes it into the 2% to 3% band.

    RBA always win eventually.

    In the US the Fed want the markets to finish higher as they go into the election so they will keep lowering rates.

    The lower the US rates go the higher commodities go. The higher commodities go, the higher inflation goes.

    We have 2 forces working against our economy. Rates going up here and rates going down in the US.

    My guess, most of the economy will move along and keep growing. I think the mining boom will continue and will drag along with it all segments that help service that industry.
    Last edited by a moderator: 28th Jan, 2008