<<patron - could you please translate to code?>>
KR: certainly!
Noland said that despite 100 basis points in interest rate cuts, increasing flow of money into money markets AND into equity funds, and near-record refinancing activity (and credit "creation", nearly out of thin air by the GSE's), we're still in the sh*tter! To the extent the liquidity is conjured up by these moves, it tends to flow to the sectors that don't "need" them (ie, to housing and increasing the size of the bubble building there) and away from the sectors that do "need" them ie, Cali utes, telco companies, manufacturing, Turkey. He also points out that credit (and therefore "money" creation has been increasing independantly of the Fed's so-called tightening actions all along, due to the activities of the GSE's (FNM, FRE). MZM is the broadest monetary aggregate, and its growth has been steady (even accelerating) despite the market's "race to the bottom":
stls.frb.org
(For fun, compare this chart with a one year chart of the Naz-Dung.)
BubbleBoy (aka, Greenspan) is pushing on a string here. For one thing, he DOESN'T control money growth to anywhere near the extent he's credited with(though the Fed's actions are important in a symbolic/sentiment manipulating way). Untill the mountain of bad debt has been paid down (or written down as a loss by the banksters), forcing "money" in the system is both destined to fail in its main objective (stimulating the economy), and will produce a number of undesired side effects (more bad debt, inflation in areas already inflating, weaker dollar).
The short version: Interest rate cuts by the Fed are not a panacea for the current economic slowdown in the U.S. Things will continue to slow untill the excesses of the past (particularly of debt and malinvested bubble assets) are worked off. We may get brief rallies stimulated by Fed policy, these will be doomed untill the economic machine leaks has been repaired and can effectively use the "gas".
Regards
Patron |
