The Fed Flinches

NEW -> Contingent Buyer Assistance Program
<p> WINEX, I see that now. I guess I should have stayed up and watch how the market closes before I rant. </p>

<p>Now let's see how far this counter rally gets. That old floor specialist form UBS puts it well "Bear market rallies are sharp and powerful, but dies with low volume." Once the trading volume dries up, shorts done covering, watch out.</p>
 
<p><a href="http://forums.irvinehousingblog.com/discussion/1542/rogue-trader-takes-down-french-bank/#Item_15">http://forums.irvinehousingblog.com/discussion/1542/rogue-trader-takes-down-french-bank/#Item_15</a></p>

<p>What did I say?</p>

<p>The Fed did bail somebody out - and it wasn't even one of our banks!</p>

<p>All you armchair economists out there look out - you may not agree with the fed, but they are indeed smarter than you.</p>
 
<p>There is some question of whether the Fed actually knew what had happened. Likely they didn't, only that the mkts were super roiled.</p>

<p>And I wish they were smarter than IHB-ers, but I'm not convinced that they are. And look who they have as ultimate boss. The biggest _____________ pick your expletive, of them all.</p>
 
<p><em>"you may not agree with the fed, but they are indeed smarter than you"</em></p>

<p>98% of IHBers are smarter than me, but I am way smarter than the Fed.</p>
 
<p>(sigh)</p>

<p>The criticism of the fed is a constant in our society.</p>

<p>My dad, who is not a man of violence, would of gladly killed Paul Volker in the early 1980's. My dad farms, and when Volker raised interest rates to 20% or so to bust inflation, he caused the domestic farming crisis of the early 1980's by causing a rapid appreciation of US currency (strong currencies kill exports). Pops wasn't the only one. Today, he's regarded as a Saint by the kind eyes of history.</p>

<p>Except by my dad, who at 66 and fighting cancer, would still like to fight him.</p>
 
According to Cramer, it is a reason to buy a home and buy equities. He says the bottom is in, for both real estate and equities.<p>


I think I will keep waiting to buy a home, and stay short on stocks.
 
<p>Q: Are you smarter than the Fed?</p>

<p>A: Did you predict a large drop in housing prices back in 2006? Did you say that rampant fraud in the mortgage industry would cause its own problems? Did you stay a renter despite having enough money to buy a house 2005-2006? </p>

<p>Extra credit research: Did any of the Fed Board of Governors sell their houses and convert to renting in 2005-July 2007? If any of the Governors did that, they should get an extra vote. Even if they sold a vacation home which they didn't replace, listen to them a bit more.</p>

<p>If any of the Governors bought a newer bigger house 2006-2007, question their judgment, or whether they were paying attention.</p>

<p>Coming soon: Are you smarter than Société Générale?</p>

<p> </p>
 
Lawyer Liz, today is a continuation of the same flinch.





Given the lag between a change in Fed funds rate and an impact on the economy (about 9 months), have things deteriorated that much since last week that we need another .5% cut? Why couldn't the Fed see the "need" for a 1.25% cut last Tuesday? Or why couldn't the emergency cut wait until this week?





One of the most important things that the Fed can have is credibility. This Fed has lost it.
 
<p>If wages take off, the Fed can quickly ratchet rates right back up. Take a page out of Volker's book.</p>

<p>China is hording comidities. There is a worldwide shortage (by comparision to the past 30 years) of foodgrains because the planet is eating more calories than it has in the past. This means increased input costs. And if the fed runs rates to 50% it won't even dent demand. It might toss us into a depression, but hey! No sense fighting the dragon you can't slay!</p>

<p>A little banking crisis is good every now and then. In a sense, they are like cavities. They are good because they let your teeth breathe.</p>
 
FairEconomist, where have you been? Alan Greenspan undid the work that Paul Volker did, and Ben Bernanke is following in his footsteps. You can't blow a bubble big enough to eliminate the pain from the previous bubble. Recessions are a normal part of the business cycle, and government interventions into the free market designed to eliminate portions of the business cycle for political means aren't the solution to the problems we face. They are the CAUSE of problems we face.
 
<p>I do not think that we call it flinching anymore, it is just what the Fed does now. Cuts rates.</p>

<p>No_vas.. . we could get stagflation and that it fun for everyone. </p>

<p>Awgee.. . Cramer was only off about a year too late (still about 6 months earlier than the rest of the MSM) so his prediction may be true in a year or two.</p>
 
<p><em>"Awgee.. . Cramer was only off about a year too late (still about 6 months earlier than the rest of the MSM) so his prediction may be true in a year or two."</em></p>

<p>Or three or four?</p>
 
<p>IC:</p>

<p>If you look at the ratio of inputs:wages one could make an argument we are in an era of stagflation now. The companies in the middle have, thus far, sucked up the squeeze for fear of passing along the costs and losing market share.</p>

<p>What is more important: stagflation of the colapse of the banking system?</p>

<p>If it wasn't for CDO's you'd already have a bunch of bank failures now.</p>
 
<p>There is a disconnect on this board between academic economics and it's actual applicaiton. Try this dose of "The Scientific Method" on for size:</p>

<p><strong>Hypothosis:</strong> As interest rates are lowered, inflation is increased because more people borrow money and chase a finite ammount of goods.</p>

<p><strong>Real World Conclusion:</strong> If nobody can lend the money, rates can go to -0- and it won't matter.</p>

<p>Reference:</p>

<p><a href="http://mortgage.freedomblogging.com/2008/01/31/loan-production-dismal/#comments">http://mortgage.freedomblogging.com/2008/01/31/loan-production-dismal/#comments</a></p>

<p>You can't get a loan done. It's only a short time before this crosses over into your companies operating line of credit with their lending institution, and maybe your personal lines. Be careful what you wish for.</p>
 
><strong>Hypothosis:</strong> As interest rates are lowered, inflation is increased because more people borrow money and chase a finite ammount of goods.





The "because" part of your "hypothesis" is wrong. The value of a given currency relative to other currencies is a function of supply and demand. When the Fed cuts rates, the interest paid on government bills goes down. This reduces demand from foreign buyers, and results in a weaker base currency. It takes larger amounts of a weakened base currency to buy exports from other countries, thus fueling inflation. <strong></strong>
 
The fed has said they don't care about asset bubbles. They care about inflation and financial collapse. So far they've handled both. I agree they've shown very bad judgement on bubbles but their credibility is still intact. I think the chances for massive inflation are minimal; the fed's current goal is to save the financial system. Since the financial system borrow short to lend long, inflation would kill it. Bernanke isn't going to ruin his banker friends.
 
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