Thursday, January 8, 2009

1694 and all that reports:

Jan. 8 (Bloomberg) -- "The Bank of England cut the benchmark interest rate to the lowest since the central bank was founded in 1694 as policy makers tried to prevent the credit squeeze from deepening Britain’s recession. "

I won't get cute with jokes about how long ago 1694 was.

Consider that when Japan cut rates to zero, it was reported that this was the second time in known history that rates had gone to zero (the other was Holland, I believe after the bursting of the tulip bubble). Now, zero or record low rates are the norm.

This would appear highly unlikely to happen if significant growth is right around the corner.

How much debasement of the currency will ensue is a more arguable point. Given that the large competitive purchasers of Treasury securities set the price and are willing to settle for record low yields for many years out, at least these sophisticated buyers are NOT in the inflationista camp. The little guy shouldn't trade against them - at least that is the view here.

Where to invest to make money is a more difficult question. Fed buying, and expectations of more buying, have already made a big impact on Goverment mortgage-backed yields. Government/Fed actions are ruining your investment options- all to stimulate people to do what they are currently disinclined to do; and to favor borrowers over lenders. These policies are both wrong and unfair.

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