This brings two points to mind:
1.) The Fed has no interest rate moves left. This is it.
2.) The Fed is terrified about the economy. And they have good reason:
Since the Committee's last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined. Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further.
Let's look at the charts:
Employment has taken a nosedive. As a result:
People have cut way back on their spending. As a result:
Industrial production is dropping and so is:
Capacity Utilization -- the amount we are using of our manufacturing capacity.
More to the point, the Fed will step up their other activities:
The focus of the Committee's policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve's balance sheet at a high level. As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant. The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities. Early next year, the Federal Reserve will also implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity.
To the point: the Fed is scared right now. I mean really scared. And they will do anything even remotely possible right now.
11 comments:
well I suppose they could start putting rates back up again when the near zero interest rate policy fails to stimulate the economy.
They are afraid because the economy doesn't work like the Chicago School said it did. Interest rate cuts and tax cuts can't substitute for loss of manufacturing jobs and the loss of income for most (i.e. non-CEO level) workers. An economy can't be sustained by selling goods made in China and paid for with T-bonds. An economy also can't be sustained by selling obscure funny-money Wall Street derivatives.
They could always use the Bush plan like was done in Iraq. Print up 1000 TONS of 100 dollar bills, shrink wrap them onto pallets and lose them somewhere in the US. Repeat this until the economy comes back to life.
One word, Japan.
Though, we'll be lucky if it isn't twice as severe. Fucking greedy baby boomers.
Don't blame an entire generation for the faults of a very few.
bin Laden won.
So we are officially dead in the water. How long we stay in the Fed's Sargasso Sea is anyone's guess at this point.
The links in your tables go to the photobucket home page. Can you link to a full-size table instead so we can have a closer look at the data you present?
Thanks much.
You know, it seems to me that the best solution would be to invoke FDR's bank holiday again, look at everything the banks have on their books (including CDSs), and make some sort of determination from there.
If the Fed, the Treasury, the Comptroller of the Currency, and the SEC determined that the banks are insolvent, it would make sense to nuke them, force the losses on the investors, BUT not before creating something to replace them and capitalizing the new vehicle(s). Moreover, create a new regulatory framework and nuke the ratings agencies.
That way, the uncertainty would be removed from the markets, the bad investments would be punished, taxpayer capitalization wouldn't be throwing good money after bad, and our Federal institutions wouldn't be dragged down and made insolvent in a Quixotic attempt to prop up private insolvent zombie institutions.
You know, another thing. . . . This rally is ridiculous. They got 360 points on a rate cut of 3/4 point? That's it? That doesn't even seem to be on the outside bounds of the recent volatility. It seems inevitable that the market will cough up that 360 points, and more, as events continue to cascade downwards.
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