I think I've figured out how Greenspan and the fed are trying to slow down the markets without being blamed for the bubble's inevitable collapse.
They can't hike rates a full point intra-meeting or anything like that, because the immediate crash would be blamed squarely at them. Above all else, the fed wants to do one thing: maintain their powers. After nearly losing those powers after the 1929 crash and resultant hunt for scapegoats, they will do anything at all to avoid a repeat of that situation.
So, what's left? Raising margin requirements could also shock the market, and people would still point the finger directly at them.
Anything else? Let's see.. The nasdaq started exploding late last year when the fed started its printathon in preparation for the y2k disaster that never happened. To everyone's surprise, they kept printing like crazy even after y2k turned out to be a non-event. This liquidity floodgate was clearly going directly into the markets- i only recall two or three days since Jan 1 that the fed actually drained liquidity, and those days were big down days for the markets.
But the whole concept of adding or draining liquidity is obscure and something the average joe 6 pack has no understanding of, or is even aware of unless he is savvy enough to monitor fed open market committe actions. Aha! We've got a winner!
Can anyone confirm that the fed either refrained from operations or actually drained liquidity today? Even better- can someone post the link where those newsflashes are reported?
At the last congressional Q&A session with greenspan, one of the senators grilled Greenspan on the massive liquidity injections, and suggested the fed was supporting the bubble. Greenspan responded with some vague statement about not knowing how to measure the concept of money. But I bet he left that meeting knowing that that particular congressman knew EXACTLY what was going on, and that greenspan would be lynched by that group of senators if he didnt stop printing like mad.
So. I hypothesize that the fed is simply going to stop printing. They don't even have to go so far as actually draining liquidity- because they know the market can't stay up without NEW money. Without these constant injections, the market will collapse under the weight of insider selling, new offerings, and plain old fashioned selling.
So the fed can literally DO NOTHING, and have the market bubble collapse. And they can't be directly blamed for anything, because they didn't DO ANYTHING that can be easily pointed to. When the fit hits the shan, they can plead innocence and say that since y2k was not a disaster, that they were only doing the responsible thing by not injecting reserves anymore.
This has to be it. There's no other way the fed can avoid blame for the economic disaster to follow when the bubble bursts. THIS IS THEIR ONLY OPTION! |
