Sunday, January 27, 2008

WSJ and Voxeu Debate Fed PANIC!

"And such a panic is unfortunately what we have. ... The worst part of yesterday's decision is that it looked like more Fed appeasement of banks and equity traders, suggesting even a hint of panic by the Fed itself. ... Mr. Bernanke's interest in more Fed transparency is admirable, but we'd prefer if he saved his explanations for when he acts. ... The larger risk is that these rate cuts will contribute to a further flight from the dollar, along with more inflation down the road. ... Above all, Mr. Bernanke needs to be clear with everyone--Congress, Wall Street, investors--that easier money is not some magic elixir for the underlying problem of bank insolvency", my emphasis, Editorial, WSJ, 23 January 2008.

"The FOMC did not act because the stock market was declining precipitously. ... Importantly, every Fed official knows that they should not and can not cut interest rates every time the stock market falls, or threatens to fall, by 5 or 10 percent in a day or two. Instead of focusing on high-frequency stock market gyrations, central bank officials are surely focused on the evolution of real economic activity. ... A second explanation for the timing of the cut is the possibility that this vintage of the FOMC would like to show that it can be more nimble than some people think they might be. ... If the proper interest rate instrument setting is 2 or 3 or 4 percentage points below or above the current level, why not just change it all at once? ... I should not sign off without making some comment about inflation. ... Clearly, today's actions are not directed at combating this gathering menace. Instead, for now the FOMC is forsaking its inflation objective in an attempt to keep the recession from getting worse", Stephen Cecchetti (SC) at, 23 January 2008.

Bank insolvency? Say it ain't so Joe. What does Michael Woodford think of this, see my 25 January 2008 post? As it is written, "Beware of false prophets, who come to you in sheep's clothing, but inwardly they are ravenous wolves. You will know them by their fruits. Do men gather grapes from thornbushes or figs from thistles? Even so, every good tree bears good fruit, but a bad tree bears bad fruit. A good tree cannot bear bad fruit, nor can a bad tree bear good fruit. Every tree that does not bear good fruit is cut down and thrown into the fire. Therefore, by their fruits you will know them", Matthew 7:15-20 (NKJV). Ignore anything Helicopter Ben (HB) says. HB's fruit is: sacks of dollars. As I have said many times, either the Fed destroys the banks or the dollar. It's that simple. Your answer: got gold? Get more! Let HB be "thrown into the fire" by himself.

Has SC ever traded stocks or bonds? Has he had any contact with the capital markets? "If the proper interest rate instrument setting is 2 or 3 or 4 percentage points below or above the current level ... ". How would he know? Or HB? Or anyone else? Speculators determine this when they trade bonds! Does SC think interest rates are a thermostat that a homeowner can set at 68 or 78 degrees? How does SC know the Fed is concerned about "real economic activity"? Because it says so? I disagree, "the FOMC is forsaking its inflation objective". It's furthering its' inflation objective: more rather than less! I mention SC in my 28 November and 16 December 2007 posts. The Mogambu Guru blasted SC for not understanding the inflationary effects "of dollar depreciation". Apparently SC's learned something since then.

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