Thursday, September 20, 2007

By creating a train wreck in slow motion Feds are doing as much harm as they can

Damn it! Helicopter Ben showed his true color.

Either the Feds under the leadership of Ben has been proven to be backboneless, inept or we are still way off from the transparency in either macroeconomics data or policy.

All the macroeconomics statistics tells us that economy is largely fine coping with the stresses. Yes, there's shrinking of employment, which could be due to braking of construction and lending activities. It is all but normal frictions in employment and economy. Or it could be the artifacts from the adjustments after adjustments by Department of Labor statisticians. A little downside risk could always be on the horizon, like any normal days in the world economy. There's credit crunch as market is adjusting risk perceptions and it works quite well. Countrywide is no long expanding like headless flies to fill every space left by other demised sub prime lenders. Investors are asking for higher premium for risky assets. Credit spread is moving towards the long run average. With injection of money supply and maintaining of discount window, there's no liquidity crisis for large part of economy but the once highest-flying speculators.

Then here come the shocking bold cut of Fed rate. Our indoctrinated monetarist, armed with goofy expectation theory demonstrated their ultimate recklessness in handling of economy. Good old days come back and all the zombies are back to party. It is a prescription to jump start speculation all over and again rather than the care economy needs. Rational investors are the ones being hit the hardest. They will stomach little return for their financial conservatism today and suffer with everyone in the future for high inflation and high interest rates. And there will be a worse crash to rescue down the road. Well, the Feds think they are god and capable of eliminating any hazard in market or economy. They will serve to prove that "no one is greater than market" once and again. By resorting to Leninism central planning tactics against normal market force, the Feds are doing all the harms they can along this march to stagnation in the future.

The only other explanation for Feds’ behavior is gross lacking of transparency in macroeconomics data or policy. If turned out to be true, that's another poor report card for Feds and another hazard for economy.

1 comment:

Luke said...

I just found a much better analysis (by Barry Ritholtz thank for a link at Paul Krugman's blog) that my layman rants.

And there's even a YouTube movie