Closer to ZIRP, Liquidity Trap, Lost Decade,

“The door is wide open for further rate cuts or anything else that might help the economy. The implication is that we'll see another half-point cut in December, if the prospects for the economy remain poor.'' -Allen Sinai, Decision Economics

Fed Signals Door `Open' for Cutting Rates to Lowest on Record: “Federal Reserve Chairman Ben S. Bernanke signaled he's ready to cut interest rates to the lowest level on record should the central bank's actions fail to stem the deepening economic slump.

Policy makers said yesterday that “downside risks to growth remain” even after their half-point reduction in the main rate to 1 percent. The Fed dropped a reference in its statement to threats from inflation, projecting “levels consistent with price stability'' in coming quarters.”

Yesterday we got one step closer. Already the market is expecting another 50 basis point cut to 0.50% in December. (See: Really Scary Fed Charts, Why Bernanke Will Furiously Cut. This post has become a monthly series.)

“Bernanke is drawing on an academic career studying the failed efforts to prevent the Great Depression, and yesterday's shift indicates he's prepared to revisit his 2003 commitment as a governor to lower rates to zero percent if necessary. Should lending fail to revive by December, the central bank will probably cut by another half point, said former Fed Governor Lyle Gramley.”

In Japan 2.0 I argued the following:

“We are heading for Japan v2.0.

Think ZERO percent interest rates and think DEFLATION. Think LOST DECADE. Think DEPRESSION. Now make all that GLOBAL.

That is what we have to look forward to.”

We are heading for a Liquidity Trap. Believe it. DEFLATION is Here, inflation is what we had.

This mess will take a long long time to sort itself out. Just like Japan had their Lost Decade, so to will America.

Related Posts:
Japan 2.0
Japan 2.0: Liquidity Trap
The Lost Decade
Stimulus Package: Does it Even Work
DEFLATION is Here
Lost Decade

The Really Scary Fed Charts Series:
1) Really Scary Fed Charts, Why Bernanke Will Furiously Cut
2) Fed CHANGES Really Scary Fed Charts
3) Really Scary Fed Charts: MARCH
4) Really Scary Fed Charts: APRIL
5) Really Scary Fed Charts: MAY, False Alarm?
6) Really Scary Fed Charts: JUNE, ‘Just’ 1% of GDP Now
7) Really Scary Fed Charts: JULY, More of the Same
8) Really Scary Fed Charts About to Get Crazy Scary
9) Really Scary Fed Charts: OCT, Now Crazy Scary