Yes, the question is how she goes. I believe the Bernanke Fed is
a direct heir of the easy Al Fed, and has
contributed to prolonging the bubble, etc., with their coupon
passes along with baby step telegraphed rate increases.
The same people, the same policies. They are
certainly telegraphing now (to the dollar debt holders) that they
will think twice about cutting and will not bail out
speculators. On the other hand, they have never done anything
that contradicted nearby futures. So? They are going to cut.
50 bp. will kill their credibility with the dollar, 25 bp. will
probably do that too, although they try to word the cut around
some "ready to fight inflation" words. The question is what
happens next? Could that be an
avalanche of foreign selling also known as the dollar currency
crisis? I know your point on Fed protecting its credibility, but
their credibility with me is zero. They are bubble blowers and
bubble protectors, definitely something a credible central bank
should not be doing. My faith is that the bubble really can't
go any other way, after so many years of living large on
borrowed Yen.
I guess they feel the ultimate punishment for any CB,
abandonment of the currency, can be on its way, which is
exactly the reason for some toughness we've seen lately.
I'm not ready to praise the Fed for toughness just yet,
still in disgust after seeing their regular printing at
3-month intervals to save the markets that declined just 1%
or 2%. What we are seeing could be the beginning of the
dollar crisis. If so, the credibility of the Fed will
drop to zero, and the market will raise LT rates to 10-15%,
eventually, while the short rates stay whereever they fix
them to be. I feel it's way too late in the game to save
the dollar or have a different outcome, the real choice
will be between the dollar crisis and hyperinflation
(if they dare to engage in bailout printing) |
