Keeping the Wall Street boys happy with another 50basis point rate cut is next to a done deal... but at what cost? It's no secret that I am "hawkish" in terms of sound fiscal policy and natural consequences, so take this for what it's worth...
The cost of more rate cuts:
...further weakened dollar: mortgage rates will rise significantly due to mortgage backed securities devaluation.
...Imported goods will become more expensive: China and Asia's economy will suffer, fewer dollars to be spent supporting our bond market (once again, not good for our mortgage rates).
...Inflation: the genie is almost all the way out of the bottle at this point, it won't be pretty at all.
...Oil will exceed $115 per barrel, how about $5 at the pump, huh? If we were to take the dollar's value from 2004, the cost of a barrel of oil would be under $50! Sure, lets do another rate cut, super idea!
...The piper must be paid: natural unwinding (imploding of unsound companies) will be delayed which will result in bigger financial crisis. The bond insurers are next to go down, Commercial CDO's are going to take a huge hit, and the ratings agencies are going to face lawsuits like you wouldn't believe.
Pay the piper now, or pay him later...we keep swimming further and further from safety. Please don't mistake my pragmatism for an economic death wish. No one wants disaster, I just don't think we can avoid it with the measures that our government is currently taking.