Wednesday, January 23, 2008

More steroids please

Not content with all the earlier financial bailouts and rescue packages from the world's politicians for the world's troubled financial centres (and all those now being offered), the 2008 stock market slide has seen the US Federal Reserve push the panic button overnight, serving up rocket fuel to add to the earlier diet of rocket fuel on which it had placed the US economy.  Steve Horwitz points out what should be obvious to any intelligent financial commentator:

...excessive supplies of credit enabled mortgage lenders to give out high loan-to-value mortgages right and left, leading to delinquencies and foreclosures, supposedly leading to a weakening economy and a falling stock market, which the Fed is now attempting to "cure" by cutting rates by 75 basis points, which will inject even more funds into the economy.
Am I missing something here?  The "hair of the dog" is not a good hangover cure.

And (to add to the metaphors) prescribing more steroids as a cure for excessive earlier doses is a sure sign of a quack doctor.  That goes for financial quacks just as much as it does for medical ones.

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4 Comments:

Blogger Tim Wikiriwhi said...

P.C'
Have you herd of the book..."The Puritan Gift" by Kenneth Hopper & William Hopper, 2007 ?
I saw an interview on BBC World 'Hard talk' which was very interesting.
This book has been called the 'Must read' on economics for 2007 and aside from its main thesis that Puritanism was the main force behind Western/ global Capitalism, It praised corporations like IBM and General Electric and was also is very critical of the misuse of credit.
In the interview it said the current financial failures of financial institutions (Losses etc) are "as if to validate the book".
That is as much as I can tell you about it.
Tim Wikiriwhi

Tim Wikiriwhi

1/23/2008 06:55:00 pm  
Blogger Elijah Lineberry said...

Yes, it was a bizarre and stupid move by the US Federal Reserve.

They should face realities and simply let markets crash and allow the resulting 'depression' to take place...(Andrew Mellon wisely followed this course of action in 1929/30).

Apart from the obvious benefits of another Great Depression...(namely, large numbers of poor people being destitute and large numbers of ghastly middle class people becoming poor people)...it will end the 25 years of instability in many financial markets, and encourage more rational behaviour all round.

(On the other hand, when interest rates were cut earlier this morning, I was long in gold at $853-40, the gold price soared to $890-00 and I made a killing..so...what do I care?)

1/23/2008 10:52:00 pm  
Blogger Brian S said...

The Down Jones doesn't look too impressed today.

1/24/2008 06:59:00 am  
Anonymous Falafulu Fisi said...

Elijah said...
They should face realities and simply let markets crash and allow the resulting 'depression' to take place.

Econo-Physicists think they can predict market crashes.

Physics: Market calms before storm

Can academics predict the market?

1/24/2008 12:23:00 pm  

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