<<I guess for now they figure that mortgaging us into the stars is not a danger as our economy is an engine that might be able to take on such a load IF things turn around>>
After seeing them in action the last 3 years, I don't believe their thought process is anywhere near that complex. To them, they (interest rate policies) are a hammer...and all economic "problems" are nails. They are mortgaging the future well-being of the US economy, though. The time will come, and it won't be long (if we haven't reached it already) when short term rate cuts will do absolutely nothing. My favorite marker for the effectiveness of short term rate cuts is C&I lending...the problem isn't rates being too high, the problem is credit impairment and whether borrowers are able to make a positive ROI on borrowed funds. They can't (at least in the real, non-financial services economy), so they don't borrow (at least the ones who are creditworthy...all the derelict companies (Polaroid, Xerox, PVN, ENE) are drowning men looking for a life preserver, so of COURSE they'll borrow). See the lower graph below:
stls.frb.org
C&I lending is the best canary in the coal mine for deflationary bubble collapse. Until it turns up in a meaningful way, I really don't have much fear being a bear. |
