Was that a sop Mr Bernanke tossed out earlier?

A reference to credit tightening ‘turmoil’ in the financial markets was politically inevitable; and enough to feed the grist mills of most prejudices.

In spite of that most observers will continue to assume that the only bailing out scenario conceivable would be one in which the wider US economy was also under grave threat.

That is simply not clear as is. Maybe it will become so for the popular (it seems) belief that excessive leverage and credit will not in due course have a wider reaching non-housing sector 'real world' economic impact is a touchingly faith-based one.

Still, that is not a call for cuts: an unmedicated end to the liquidity bender must be (up to a point) preferable.

The Chairmen just prescribed a chill-pill. But, really, he had little choice.

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  1. Will Rahal // 8/08/2007 03:06:00 PM

    High Interest rates are suffocating the economy already.

    In the last three decades when the last(quarterly average) rise in interest rates takes place
    and Nominal GDP year-over-year growth starts to decelerate , the Fed has
    cut rates in within one quarter of this event, every time except for 1998.

    This time around we are in the fourth quarter of declining Nominal GDP growth.

    By this measure, Mr. Bernanke is already late!

    The lower US Dollar, high CPI rate and the Chairman’s reputation, prevent
    the Fed from lowering rates.

    See this graphically at “Fed Meeting “, August 5, 2007

  2. Charles Butler // 8/13/2007 07:33:00 PM

    And for an example of faith in action...



  3. "Cassandra" // 8/14/2007 02:39:00 AM

    THe Press have mistaken CBs providing liquidity to insure systemic well-being - that is, the providing sufficient funds to the money markets to insure financial institutions are not forced to "sell position to make position" any more than necessary - with the Greenspan Put, and bailing out of both leveraged specs and greedy ill-advised consumers of investments. The "Bernanke put" will (I think) be shown to be struck farther out of the money than the Greenspan put, letting over-leveraged specs boil in a pot of stew of their own making, nutil such as time as the real economy is visibly effected by rising unemployment. He must do this to establish and insure his future cred, but also because its a policy position whose time has come.

    A de-leveraging that causes leveraged spec trades to unwind will, I have a hunch, lead to stronger dollar since soooo many HFs and americans themselves have front-run the trade. Will CHina use the opp to lighten up? If TeamJapan is any guide, the answer will be "no", and mid 1.20s vs. Euro will make my wine tab that much more affordable...

  4. Anonymous // 8/14/2007 09:53:00 AM

    Don't forget to include that tomorrow is the feast of the Assumption in your calculations.


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