The Fed Cuts Rates, Puts U.S. in Greater Debt

Jack Crooks takes a look at the rate cuts made by the Federal Reserve and examines the financial debt that the U.S. is in. In this issue of Money and Markets, Mr. Crooks explains about the financial crisis the U.S. is getting itself into.

Jupiter, Fla. (PRWEB) December 16, 2007 -- Jack Crooks takes a look at the rate cuts made by the Federal Reserve and examines the financial debt that the U.S. is in. Mr. Crooks explains about the financial crisis the U.S. is getting itself into.

The 25-basis-point rate cuts made on December 11 failed to satisfy the market, and the Dow's 300-point drop proved it. In fact, investors showed a strong distaste for anything remotely risky: Stocks and high-yielding currencies plunged, the yen rallied, and the commodity-dollars (Canada, Australia and New Zealand) sank.

Then on December 12, a complexly orchestrated scheme involving five global central banks was worked out. The scheme, coordinated between the Federal Reserve, Bank of Canada, Bank of England, European Central Bank and Swiss National Bank, was to lend out $40 billion and more in separate auctions at rates significantly below the Fed's discount rate.

Investors initially hailed this plan as the solution to all the market's problems. They figured banks would no longer be humiliated by relying on the Fed for bailout money, no longer would financial institutions be reluctant to lend money to consumers and businesses, and no longer would the threat of a U.S. recession breathe down their necks.

Banks have gotten themselves into trouble by investing in complicated bundles of bad debt. And even though central banks intend to direct their organized bailout right where the biggest threats exist, the proposed plan of $40 billion plus a few other perks won't be enough to clean up this mess.

The U.S. is dealing with masses of confusing debt-backed derivatives. Some estimates are $450 billion on the U.S. side alone. According to Morgan Stanley, total derivatives outstanding at the end of 2006 reached $415 trillion.

Meanwhile, the questions concerning subprime losses and related investments are many, the answers are few, and the potential for conditions to worsen will not change with a simple auction.

Banks are reluctant to lend money because they need to stockpile it right now. In the event that conditions do worsen, banks need to have capital on-hand to cover their investments should they blow up.

"There are at least hundreds of billions of dollars of bad debt sitting on the balance sheets of institutions everywhere. No matter how much external liquidity is provided by the Fed and others, it's still bad debt," Mr. Crooks explains.

To read this issue online, please visit:
http://www.moneyandmarkets.com/Issues.aspx?NewsletterEntryId=1271

About Jack Crooks & Money and Markets    

John (Jack) Crooks is the founder and president of Black Swan Capital, an independent advisory firm specializing in foreign exchange and currency markets investing for retail and institutional clients. A seasoned financial advisory with nearly 20 years of investment experience, Mr. Crooks uses both quantitative and qualitative approaches to determine the fundamental driving force(s) behind the movement of the currency, capital, and commodities markets. He is the editor of Weiss Research's latest investment offerings, World Currency Alert and World Currency Options, which were launched in August 2007.

Mr. Crooks also founded Ross International Asset Management, a discretionary money management firm specializing in global stock, bond, and currency asset management for retail clients. Previously, he was general manager of Plexus Trading, where he specialized in currency futures and commodities trading. During his successful career, Mr. Crooks served as chief currency and futures strategist of M2 Futures Inc., an investment boutique headquartered in Chicago, as well as vice president of Global Strategic Research for an international investment boutique, where he was responsible for providing daily advice and global strategy analysis.

Prior to entering the investment arena, Mr. Crooks held various corporate finance positions. He has written extensively on the subject of global currencies and international economics and has been published in Asian Times, Futures Magazine, Barron's, Bloomberg, Dow Jones Newswire, and across many financial websites. He has also appeared on Bloomberg TV and CNBC.

Mr. Crooks holds a bachelor's degree in finance from Florida State University and a master's in business administration from the University of North Texas.

Money and Markets (www.moneyandmarkets.com) is a free daily investment newsletter from Dr. Martin Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Weiss Research, Inc. is located in Jupiter, Florida. For more information about our editors, or to set up an interview, please contact Jennifer Moran at 561-627-3300 or visit www.moneyandmarkets.com.

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