Oh, I have no doubt that the Fed believes itself to be almighty and bulletproof, and to the extent that JSP and therefore Clowngress doesn't understand any of this stuff, they will always take the Fed's advice and follow its direction in what should be done (minus the occasional Ron Paul).
Therein lies the frustration -- whether you or I like it or not, the Fed is mandated to fix the problem. However, because they see it as a liquidity problem instead of an insolvency problem (or should I say, it's in the Fed members' own self-interest to view it as a liquidity problem) their "solution" is to artificially lower interest rates, the collateral damage of which is the decline in the dollar.
Whether or not lower rates actually restimulate the economy (which based upon IRX <1.00 I doubt will occur until the insolvency issue is addressed by recapitalization of the banks) they might perversely still serve to "stabilize" domestic asset prices at their inflated levels in nominal terms -- unfortunately in the process those artificially low rates will also drive up the price of everything else in the land to the same inflated level in pursuit of equilibrium. Put another way, you can't make a house price be $1,000,000 when the market has already collapsed and it should really be $500,000 and where, e.g., $500 is fair market for gold -- but with some loose monetary policy, maybe you can help hold up that nominal house price at $1,000,000 so that the mortgage doesn't appear to be upside-down in order to help yourself out if you're a Fed bank member -- the big tell-tale being that gold goes to $1,000 in response.
The Fed's grand scheme to support asset prices isn't working very well though, except perhaps in the equity markets where they can buy SPX futures to rig the game -- unfortunately for the Fed they can't really rig the housing indexes the same way, and house prices are still falling (as they should be, until such time that they no longer reflect the ridiculous amount of financial leverage that was used to bid them up). So while the Fed keeps applying ineffective solutions and house prices keep falling, more financial institutions are going to remain starved for cash and will eventually blow up as a result.
Since the Fed has used up about half of their ammo already, it won't take much more calamity before they have to seek the Treasury's assistance to get out of this mess, i.e. blatant in-your-face money printing instead of esoteric poking and tweaking. Put the story of a useless Fed on the front page and you will probably see that long-awaited equity crash |
