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With Wall Street begging the Federal Reserve to cut the Fed Funds target rate, few have noticed the effective rate already has been lowered, triggering what could be the beginning of an unprecedented worldwide dollar sell-off.Econometrician John Williams documented in the most recent newsletter on his Shadow Government Statistics website that in the 11 trading days since the Fed has cut the discount rate, the effective Fed Funds rate has averaged 4.84 percent, ranging 25 to 50 basis points below the official 5.25 percent target rate.The Fed Funds rate is the rate at which commercial banks may borrow excess reserves from one another. It is considered the key rate index set by the Federal Reserve Open Market Committee, or FOMC.The minutes of the Aug. 7 FOMC are due to be released tomorrow and are certain to be scrutinized by Fed watchers for indications of the future direction of movement in Fed Fund target rates set by the committee.Currently, Wall Street is begging for a rate ease as a return to the easy credit policy that fueled the credit markets in real estate, commercial paper and leveraged buyouts. An unprecedented strategy of widely available easy credit has stimulated world stock markets to a string of record highs since 9/11, with the Dow Jones Industrial Average reaching a peak of more than 14,000 July 19.To stabilize the Dow's 1,000-point drop since then, the Fed literally has printed money.Williams estimates central banks around the world, including the Fed, have infused $1 trillion in the global banking system during the last two weeks.While the European Central Bank has been raising rates, the drop in the effective Fed Funds rate and the reduction of the discount rate pushed the dollar down Friday to $80.68 on the U.S. dollar index, ending a brief rally that had begun in the prospect the Fed would hold rates in the face of a sell-off.The Fed is in a dilemma. If it lowers the Fed Fund target rate, the dollar will suffer on world currency exchanges. A dollar sell-off will trigger a new stock market sell-off.If the Fed holds or raises rates to support the dollar, it will almost certainly prompt a massive stock market sell-off.Either way, the stock market in September and October is likely to drop below 13,000 and begin testing a new support level at 12,000.To read more go to:
As in the days of Noah...
