Rant: Fed/Biz Cycle!
I am with Yorikke on this one.
King Canute realised that he was powerless against nature.
Unlike Mr G, he stupidly told everyone else.
The more the pendulum swings one way, the further it has to go in the opposite direction.
(a famous watchmaker, somewhere !)
You can fight it, but this simply postpones it and makes things worse.
I am currently in Japan, and it is so obvious why they have been in a 12 yr mire!
After the over investment from the 80's you have to wait for all the over capacity/malinvestment to die before any meaningful rally or recovery can happen. The only question is: do you put the weak out of their misery (or allow the market to) or do you keep things juggling along to postpone the human and social misery?
Here unemployment is 5%. That is a joke! The majority of people going to work do not really add value (IMO). For example you have the following.
Salaried Taxi Drivers
- They are paid independent of any fares they pick up (they are usually employed by big corporations who have closed down plants and refuse to lay them off, re-assigning them to the transport division)
Traffic Wardens who signal to the trafic when the lights have changed.
- You should see them when the lights dont work! They do not know what to do, as their job is to follow the lights.
There are these and countless other jobs. The decision to allow this to continue is a political one. You exchange social hardship for economic recovery.
(I do not disagree with it, I am merely pointing it out ).
My feeling is, because Japan has failed to acknowledge its disaster, and refused to make the necessary action to its inefficient economy, that now that the world has gone belly up there is not a natural offset.
The States is going the same way, but it is currently in denial. Fortuneatly for the States its 'market-forces' are more ruthless in sorting the weak from the strong, but with every politically inspired intervention be it a Tax Cut, or liquidity injection, the inevitable recovery is simply postponed.
The Fed had already grossly distorted the business cycle in LTCM 98 and with Y2K. Those liquidity injections are the cause this stockmarket fall has been so great. The Fed is a one trick show, and currently only has 150 bps of tricks left.
The world was not going to end with LTCM - a lot of banks would have lost a lot of money, but would they have lost as much money as was lost in the great Telco rollout. I think not. By saving the Goldman Sachs' of this world from themselves, Mr G gave us something worse - a bigger more exuberant, though now supposedly rational, bubble. One would even venture to think that a lot more dot-coms would have required more than an A4 business plan to get millions of dollars of funding from people. Who needed a guarantee when the Fed was around to print everyone out.
By refusing to let the market dole-out its painful punishment now he is doing, or trying to do, the same again.
The laws of supply and demand are natural laws. They can cancel the 30Yr Bond, allow increased corporate buybacks, they might even attack short-sellers next (c.f. Hong Kong!) , but they cannot repeal these laws.
They know this, but no-one wants to be unpopular!
-macavity |
