Indy Telecom & Industrial Media

A long, long time ago, BPSK and I had a conversation on the “capitalism” that UK and the US practice.

We made fun of the faux capitalism that’s in reality a Fabian-esque socialism that Britian practices, and how the US would “differentiate” itself by Paulson calling up Pandit to do a save.

Well, turns out that we weren’t too off. Paulson did not call Pandit, but instead called Dimon to do a save. Isn’t it a joy to be in a capitalist economy where the free market decides what needs to be done?

To this end, I recently came across an article that suggested that the Fed is considering Nordic-styled nationalization of US banks to help bail out the economy from its current crisis.

Let’s just say that I am at a loss for words.

As a lot of people predicted, the Feds have lowered the rate yet again by 25 bps.

While this may help the sub-prime and housing markets, it is probably going to be detrimental to other consumer-lending operations. And I think that this move is likely to have some rather severe ramifications for the US economy in other ways, as well.

For one, the USD slid to all-time lows against the Euro, with the Euro hitting 1.45 for the first time. On top of this, the cost of oil has hit all-time highs at close to $96/barrel.

Both of these are bad enough by themselves. But with the new rate cut, what’s likely to happen is that there is now more currency being pumped into the economy. This is only going to drive up the inflation further.

And given the state of the financial sectors today and given that every other i-bank (with the sole exception of my dream-company, Goldman Sachs, of course) is down in the dumps, this is probably not a good thing for the economy.

The other thing that I feel rather strongly about is that the economy probably needs a 10% correction that needs to happen. Now, you can artificially curtail that from happening, but doing so will work for only so long. Eventually, the numbers catch up with you.

Also, it’s been known that it takes longer than just a couple of months for such rate-cuts to seep through the market (I’d love to work on building models for this - ah, some day, when I have the time). So, it is probably too early to see an impact of September’s rate cut, leave alone the new one.

Given all this, the rate cut may help bail out the stock market for now, but it is probably going to be very short term. And since the feds don’t want to be seen to be bailing out the stock market every time, a rate cut will probably not happen in December (speaking of which, Business Week has a rather interesting list of reasons for this, as well).

But what does it mean for the consumers today? That’s the more important question, and the answer to that will probably not be known for a while.

I think Bernanke is being asked the question, “Have you stopped being a puppet of the market yet?” as he decides upon the rate cut.

If he does, he’s going to have to try hard and portray himself to be an independent decision maker. If he doesn’t, well, he’d better find some way to help the markets real quick.