Mike..
I am sorry, sometime I miss some posts..
As Chairman of Fed Reserve and as regulator of US monetary policy, AG approach is that of 'fine tuning' the doses he gives the market to absorb. A straight drop of 10% so as to cap the asset inflation can lead to that snowball affect, where the selling may compound. As you know that US economic prosperity depends on 'vibrant consumer confidence and spending' a huge dent would result in hard landing. Now every one wants to control the dual objective one is to continue with this 'new paradigm of economy' and secondly built up of rational exuberance. These objectives can only be achieved if he takes two step forwad one step back. Like one's sweetheart 'hot and cold' approach in early days of romance. AG loves the markets like his sweethearts, he is 'maestro performer', he keeps his 'darling' happy. When it was required he 'manipulated' ( as my bear horny puppies call it) some nice cuts in Oct and recently when he saw his darling getting a little plump with 'exuberance', he just took some presents away. He wants a perfect figure of the market, that is how I understand his policies.
His caution works and that is what is required of a good leader. If without action you can achieve your objectives what's wrong with that!
Like Rubin was at Treasury who rarely intervened in the currency markets but got the results,similarly, I think the idea of getting his message across if he has that credibility is the most precious instrument Fed has. His resignation is worth a 2000 points on Fed until new Chairman stamps similar authority.
Globa markets rarely listen to regulators for direction and state of economy, markets think that long bond yield curve is the best indicator. They have realized now that 'low long term yields' can sometime be decpetive. In Oct what was considered as 'flight to save haven' in long bonds was actually a on going meltdown of global financial order. The market thought that it is global emergence of 'ice age', an era of falling prices and low demand ensuing deflationary threat had blackened a lot of thought processes, but actually the economy was still going strong, AG recognised the core problem, fixed the liquidity part of it and showed everyone that it was not the aggregate demnad or global spending it was financial lack of confidence.
Restoration of global authority prevented what could have been a decisive breakdown in the global equity markets. The domino effect can be hard to quantify, once we get this bearis mind set. His two faces are for the good of markets and longterm US prosperity. Thnaks for asking a good question.. At the end of the day markets wants realities and perception to intermingle, that is magic. And AG does it all the time with best of abilities. |
