Federal Reserve Bank Snackfest

Here, have a dollar
In fact, no, brotherman, here have two
Two dollars means a snack for me
But it means a big deal to you

- Mr Wendle, Arrested Development

One day after all but one of the FOMC members voted to cut the federal funds rate, the DJIA took a beating closing 362 points down. And what does the Fed do? Pumps more money into the economy. In total, the Fed unleashed the largest cash pile ever into the US financial system. $41 billion in total. That's $41,000,000,000! A sum equivalent to the GDP of oil rich Kuwait. Currently the US dollar is trading at a record low against most currencies and Oil prices are poised to breach the $100 dollar mark anytime now.

It seems the Fed is determined to ensure that consumer spending, which accounts for more than 60% of the US GDP, does not dip during the upcoming holiday season. All that remains to be seen is President Bush addressing the nation on TV calling on Americans to hit to the malls as was the case after twin towers attack.

So far Walmart has thrown in the towel and slashed prices of 15,000 items this week in an attempt to woe shoppers. As if this years 20% increase in discounted items is not enough, Walmart has promised to do more in the coming weeks.

All this is pointing a nasty end. When the bottom gives way, all the efforts by the Fed will only make it worse because of their insistence on prolonging the expansion cycle. Yesterdays release of the third quarter inflation driven 3.9% GDP estimate is a hard swallow for many investors. Should there be a sell-off of precious metals in the coming days, I'm definitely getting myself some Silver.