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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: chainik who wrote (47001)12/10/2005 4:44:37 PM
From: UncleBigs  Read Replies (1) of 110194
 
if credit growth/liquidity contracts and this leads to housing and economic weakness, the Fed will lower interest rates

That's definitely the consensus thinking. In fact, I think the reason for the huge gold rally in the last few weeks is Bernanke's appointment to the Fed. It's the combo of greed and fear. Fear: Bernanke is going to print money to infinity and destroy the dollar. Greed: Look at gold go, I'm getting on for the ride.

I really don't think Bernanke will be so quick to lower rates. With our massive deficits, he has little room to lower short term rates. We need higher rates to attract the foreign capital.

I think Bernanke will administer the easy money medicine. But it will only be after the patient has severe shakes and is pleading for it. And it won't be as much medicine as the patient would like. I think he will keep people wanting more and more medicine. That's how the Fed retains its power.
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