It looks like that the Fed gave into the screaming media this morning and executed an intra-meeting Fed Funds rate cut of 75 bps. I happened to be a forced watcher (don't ask) of CNBC this morning prior to, during and just after the Fed announcement. Prior, the daily roundtable discussion managed to use the term "behind the curve" 15 times in a 15 minute period, including twice in one sentence. After, the gang was grousing the about them being behind the curve (This, based on where Treasuries are. If that is the case, then the market has already eased and the Fed is irrelevant), not doing enough (?), and one gentleman making a case that rates should go back to 1%, even as he admitted that it was the last move there that was a major contributor to the current problem and another move to 1% could create another bubble (in what?). This same person also alluded to a point that he knew the Fed was going to make this surprise move, which, if true, the Fed should look into that kind of leak of information.
That brings me to the next point. The Bernanke Fed was supposed to be the more open and transparent Fed. Maybe they shouldn't be. All it has gotten the Fed is people that couldn't spell Fed a year ago coming out of the woodwork lobbing complaints at them. Maybe Ben should rein in the governors, and force them to cut back on their public speaking engagements. It is quite disturbing to see the direct correlation, albeit lagging, between what is said on television and what actions the Fed takes. Perhaps it was always that way and I just didn't have the time to notice it. If this is what the Fed has become, then let's abolish it in favor of fiscal policy decisions arrived at by daily, nationwide consensus polling. This way, we would get instantaneous decisions and no one with which to lay the blame on but ourselves.
For awhile today, I thought that perhaps my interpretation was wrong. However, reading the Fed's statement led me to this conclusion. The Fed's action was based on risks to the financial system, not the overall economy. Over the past few months, Fed actions have place the money markets on more normal footing (Hear the crickets chirping? That is the lack of acknowledgement that the Fed did the right thing). Now there was a global selloff in stocks, an event that was way, way overdue. There must have been quite a few overseas calls placed to Ben Bernanke yesterday (Maybe US equity markets should be open 24/7, to avoid this problem). No one has been talking moral hazard lately, using the excuse that the problem was to big. This, too, was provided by TV, giving the Fed the reason to cut.
The moral of this continuing story is that equity investors will get bailed out because it makes for good television, regardless of the consequences (because that will also make for good television).
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2 comments:
Two things here Bondguy:
1)Ben Bernanke's claim to fame as an academic was his research into the failure or the banking system during the great depression
2)This is an election year.
The reason the economic cycles have been decreasingly volatile during the past 25 or so years is due to an independent and vigilant Fed.
If Mr. Bernanke keeps this up we can start calling him Arthur Burns.
People (especially media types) should understand that the economy is cyclical. We just had an asset bubble, we need a corresponding correction. Problem is that the modern Amercian does not want any kind of negativity. Stock markets always go up, borrowing rates always go down and it never rains. Remember how a few years ago people wee screaming that the government had to do something about high gasoline prices. This is an entitlement society.
Check out:
http://mksense.blogspot.com/
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