The talk started last week in the media, only to be ramped up today with the equity market down and the economic news weaker. Look what the ECB (and a few others) are doing! They're out throwing gobs and gobs of liquidity at the markets in the hope that something beautiful will grow. The Fed, on the other hand, is performing more surgical strikes, trying to get at the root cause of the problem, the stagnation of the money markets. The pundits here are screaming up and down, "Why can't the Fed be more like the ECB?" My answer would be, "Why should they be?"
The ECB's policy of flooding the market with short-term liquidity is uninspired and, for all intents and purposes, ineffective. The ECB is like an army with only one weapon. It's not entirely their fault; the problem derives from the EU's inherent political weakness. Different growth rates and differing political agendas among the EU's member states makes the ECB's job (whatever it might be) difficult. Their policy is akin to city looking to solve its crime problem by calling in a carpet-bombing air strike. Sure, the crime problem is solved but no one is around to benefit. The problem with throwing liquidity at the situation is that it is not targeted at the areas in trouble, it has a diminishing marginal return, and the markets become dependent on its continual occurrence. The end goal is to create a smoothly functioning market, not a socialist welfare state for the banking system.
The Fed's goal seems to be to nudge the money markets back to normal function. They have made moves toward that end, being as minimalist as possible. Listening to some, you would think it is 1932 and that the New Deal needs to be recreated immediately. Take a look around, it is not that bad. Let the excesses wring themselves out of the market and let's see what happens.
Pardon the language, but the throwing of shit on the wall to see what sticks isn't the answer here. Smooth out the money markets, remove the excesses, and restore market confidence will go a long way to putting us back on track.
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Europe is the media darling. If "sophisticated" Europeans are doing it, it must be correct. Nevermind that we had to leave Europe behind to get where we are, and then pull it out of the ashes after it nearly destroyed itself in World War II. Socialism and Social-capitalism believes in treating the symptom rather than the cause. Why? Because it feels good and looks good.
Don't get me started on the New Deal comparisons. You are correct. It is not bad out there. It is mostky the big banks who are suffering. The have only their own hubris to blame for their plight.
Borrowers and lenders became addicted to easy credit. Like any addiction, this one will require some discomfort to break. The sooner withdrawal starts, the better.
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