Hi Agustus,
You inquire: WHY DIDN'T THE FED HAVE THE COURAGE TO ADMIT THEY SCREWED UP EARLIER THAN JANUARY OF 2001?
I believe that the FRB had come to the conclusion as of early 2000 that what they did to provide extra liquidity to the system in the face of a possible Y2K panic (by injecting about $500 per household into the banking system in 2H99) had backfired on them terribly. In that the excess cash simply ended up sloshing around in the most volitile of markets, the Nasdaq. So, it was very sensible for that excess liquidity to be removed from the system throughout the first 3 quarters of 2000.
The first rate cut in early January, 2001, was pegged to the drastic downturn in NAPM data as of December, 2000. Without this actual proof of the real economy slowing, there simply was no defensible justification for a rate cut. Many of us at SI had found that rather than looking at the FRB's actions, the real story was in the dramatic closing of the spigot in the bond markets as of Q400. This was the proximate cause of the cratering in the NAZ, and not any action/inaction on the part of the FRB. What the financier class realized was that they'd simply been over-enthusiastic about funding the Internet revolution, and the underwriters of equities exacerbated the situation for the retail patzer by offering incredibly (by the standards of the past) immature, risky, venture stage companies to an over-eager retail speculator. Fact is, the FRB is a pawn in the hands of the Wall Street crowd. It is there that the agenda get set. And that agenda has been to play the "new economy" for all it was worth as a gold rush. We all know the history of gold rushes. They end badly for 98% of the participants. And spectacularly well for a handful of observant, clever and manipulative players. This one is no different.
On the matter of privatizing Social Security, I'd have to say that Wall Street has shot itself in the foot on this one. The wire houses, always grasping, saw the tremendous cash flows of the SS system and wanted, greedily, to divert as much of that flow through their proprietary system as possible. Alas, they tried to hard to have their cake and eat it too. While they were raking in fantastic fees for underwriting exceptionally dubious IPOs, and selling founder's shares at grossly inflated rates into the public's eagar hands, they disregarded the fact that there is an end to the willing suspension of disbelief in every stock market bubble. Or, perhaps, more callously, they reasoned that a new, bigger fool would come along to replace the one who paid $200 for a share of QCOM, or $330 for a share of AMZN. But I believe they got the time frame wrong. It took a good 30 years for the generation that suffered through the markets of the 1930's to have enough faith in the hucksters and snake oil salesmen of Wall Street to actually make the market vital again. I don't know how much damage Wall Street has done to itself this turn of the carousel, but I believe it is just now that the bulk of the American public are waking up to the fact that equity markets are dangerous and deceptive places. This perception could take a while to remedy itself. I remain in the camp that says we have at least another couple of years of pain, consolidation, angst and uncertainty in the high-tech end of the market. The future, as they say, is on hold.
Cordially, Ray :) |
