Fed Goes For Shock And Awe

December 16, 2008 at 1:15 pm  ·  Category: Federal Reserve, Market Commentary

This is sick.  This is some kind of cartoon version of real life. 

The Fed today cut the Fed Funds rate to a range of 0%-0.25%.  In the statement, they basically said they will do anything, ANYTHING, to promote economic growth and try to forestall economic fallout.  They will sell the furniture in the White House.  They will drug the water supply (with soma).  They will drop money from helicopters.  It’s ridiculous.

Here’s the policy paragraph (FOMC Statement Dec 16):

The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability.  In particular, the Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time. 

And, without precedent, they added another paragraph after the policy paragraph saying we have no shame, we will do anything, God save the Queen:

The focus of the Committee’s policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve’s balance sheet at a high level.  As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant.  The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities.  Early next year, the Federal Reserve will also implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses.  The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity.

Here are some of the notable reactions in markets:

  • The Dow is up 200 points since the announcement.
  • The 10 year treasury has dropped 20 basis points.
  • The Euro has surged two cents against the dollar, pushing $1.40.
  • Gold has surged $10+.

Get ready for “The Next Bubble”.

Top Gun is raking it in right now because I knew they’d discard all principle and do whatever was expedient to deal with the crisis of the present moment without any consideration of the longer term consequences.  But it makes me sick.

Posted by Greg Feirman  ·  Trackback URL  ·  Link
 

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