Bernanke will blow it. He's too concerned with inflation right now to worry about a little thing like fed funds rate. by being timid and scared, Mr. Barnanke is causing more trouble right now that anything else. He should focus of fixing one thing at a time.
YOu dont think they will jsut wait 8 days until the FOMC meeting? Rate cuts take about 6-8 months to trickle into the economy
Hmm not sure about that, what if it doesn't work and everyone sees the Emperor is naked? One hell of a risk the Fed would be taking. Is big money really going to commit itself on the basis of Fed cuts alone when what they are really worried about is the structural itegrity of the markets themselves. They need to buy time and I don't think a Fed cut necessarily does that. What we need to see is a press conf in the AM before market open with Bush, Paulson, Bernanke, and Congressional Leaders saying that the underpinnings of US financial markets are backed by the Full faith and credit of the US Gov. Then we need teams accountants to go and uncover what is in these bond insurreers books and get them to close down positions in an orderly manner over the course of the year. The Fed then needs to cut rates by 1.25-1.5% over the next month allowing for a boom in refis at reasonable rates but with realistic payment assumptions this time which will still mean foreclosures but not the huge number if resets occur at current levels. Eliminate the Fed tax on gasoline for 2 months as a stimulus and add a corporate tax on cash (as someone else on ET mentioned so corporations pay out to employees). Then congress needs to set some minimum underwriting standards and also look in to the credit rating agencies and find out what they are going to do to make sure they don't get caught so wrongfooted again. It will be a long process, in the end the cost to the US tax payer will not be significant and the market will have a chance to reprice risk in an orderly fashion. Will never happen in a million years, saw Bush on TV at some DC school today (eeriely reminscent of him at that school when the towers were falling) ceratinly not in any meeting about the economy and what they can do to stave off the collaspe of US credit markets. He increasingly looks like he can't wait for his term in office to end. If there is no action by the government this week the dow could easily be off a 1000+ from current levels projected by the ym. These things feed on themselves and because this is the credit market that is were the rot is rather than equities the effect of the delevreging involved is more profound. I hope I am just being a chicken little, this is one time I would love to be wrong about the consequences that we may be facing.