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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum
GLD 368.80+0.2%Nov 3 4:00 PM EST
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To: TobagoJack who wrote (153727)2/28/2020 10:07:40 PM
From: ggersh  Read Replies (1) of 217531
 
unz.com

We think Kevin Warsh is being disingenuous. We think his plea is aimed at saving Wall Street not Main Street. Warsh is worried that the downdraft in stocks will trigger defaults by deeply-indebted financial institutions that will domino through the financial system severely impairing critical counterparties and precipitating another financial crisis. This is why is wants the Fed to act immediately even though he knows that interest rate cuts will have no material effect on a supply shock.

So what is a supply shock?

When the Fed slashes rates, it lowers the cost of money making it cheaper to borrow. When people or businesses borrow, they increase their spending which generates economic growth. This is how the Fed boosts demand by cutting rates. But rate cuts are not a panacea. They can’t, for example, resolve supply-chain disruptions in China that have been brought on by the coronavirus outbreak. Many market participants have not yet grasped this fact. Simply put: The Fed does not have the tools to fix this problem. Therefore, confidence in the Fed– to reverse the current selloff by cutting rates or adding liquidity– is misplaced. It’s misplaced because the approach will not work. If you are trying to fix your computer and the only tool you have is a sledgehammer, you are not going to have much success. This is the predicament the Fed is in.
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