Bernanke hates Valentines Day
Bernanke hates Valentine’s Day. Why else would he say such things? There’s a very good reason that Greenspan, aka the former most powerful man in the universe, was always “cautiously optimistic” about the economy. The reason being that his predictions were self-fulfilling.
Benny boy, by declaring doom and gloom you cause the stock market to react!
I understand that tact and emotional intelligence are not necessarily prerequisites for becoming the Chairman of the Federal Reserve, or even an economist; but surely the man must have learned from Volcker. Avoid any and all mention of downward markets, corrections, or (god forbid) stagflation.
The good folks over at The Big Picture do a commendable job explaining a liquidity trap and how our current situation will not be aided by normal monetary policy. The interesting aspect of the our current state is that the crisis is being driven by the financial sector. Normally, lowering the federal funds rate would cause financial organizations to trickle down the lower interest rates to businesses and individuals seeking loans. Lower interest rates imply less barriers to debt and thus more borrowing and higher growth. However, financial organizations are tightening credit standards at the same time. The people who need the most help (those who are overextended via debt) are the ones least likely to benefit from the lower interest rates. Thus the trap portion of the term.
There will be a correction. The only variable is how long it will take for the housing gap to subside. In the meantime the Fed and the finance industry both find themselves in a catch 22. I am reminded of similar situations in game theory but the specifics escape me. Any experts please feel free to ruminate.
Comment from budgets are sexy
Time March 21, 2008 at 8:41 pm
Benny boy sure does have his hands full! Great title btw, it got my attention ASAP.