If you had a seat on the FOMC...

doctorj · 22 January 2008

So what would you vote?

For me it comes down the very basic decision - should you do something predictable or should you try to shock it?

I'm torn on the predictable vs unpredictable front. On one hand, unpredictable directly equates to more risk for market participants. On the other hand if it's already factored in bond markets (30-40% chance of a 75bp cut at the end of Jan), will it really have any impact on the markets?

Also, I don't think it's about the stock market because at the end of the day, everyone is a speculator. It's about credit markets and getting the yield curve steeper with the least amount of pain in the interim.

The Fed is fighting the war on two fronts at the moment - fears of a recession and concerns about inflation.

At the end of the day, much rather them than me. One thing has stuck with me though and it was a section of Greenspan's recent book. He was discussing his first recession and his big regret was that he didn't act early enough or decisively enough.

With that in mind, to answer the orignial question, my vote is for a drop by 50-75bp tonight. I think it's the best compromise - the cut is predictable but they're just bringing it forward a little.

wayneL · 22 January 2008

This is a tough one for me because if I was on the FOMC we would never be in the position it is now.

I'd never have cut to the extent it did and rates would be higher now.

To be sure the world would already have had its recession, but it would have been an orderly one, and there would never have been this ridiculous asset bubble.

As it is, Keynesian excesses have blown a very &^%$ing dangerous bubble that could blow up in all our faces.

.25% as scheduled... but only out of spite. Probably more needed for the reasons you have outlined.

Nyden · 22 January 2008

wayneL said:
This is a tough one for me because if I was on the FOMC we would never be in the position it is now.

I'd never have cut to the extent it did and rates would be higher now.

To be sure the world would already have had its recession, but it would have been an orderly one, and there would never have been this ridiculous asset bubble.

As it is, Keynesian excesses have blown a very &^%$ing dangerous bubble that could blow up in all our faces.

.25% as scheduled... but only out of spite. Probably more needed for the reasons you have outlined.

Yes, I feel quite a bit of spite towards them as well.
World's gone to mess, so should they tonight!

Timmy · 22 January 2008

doctorj - can you add an option to raise rates please - just for Wayne.

wayneL · 22 January 2008

Timmy said:
doctorj - can you add an option to raise rates please - just for Wayne.

Timmy · 22 January 2008

The overnight ES contract is up about 9 points from being limit down - I think the news has leaked that Wayne will not be getting a seat on the FOMC...

Smurf1976 · 22 January 2008

It might take a little while to get started, but with the market situation I think what we are going to witness over the coming few years is the grandest inflation any of us have ever seen.

IMO 5 years from now paying current prices for oil, gold, food etc will seem a laughable idea and ridiculously cheap. $200 oil and $2000 gold are a lot closer than most think IMO.

No idea what they'll do tonight. But if it's a big cut then that can be taken as the signal that the grand inflation of 2008 is underway. If not then we wait another few weeks.

wayneL · 22 January 2008

Smurf1976 said:
It might take a little while to get started, but with the market situation I think what we are going to witness over the coming few years is the grandest inflation any of us have ever seen.

IMO 5 years from now paying current prices for oil, gold, food etc will seem a laughable idea and ridiculously cheap. $200 oil and $2000 gold are a lot closer than most think IMO.

No idea what they'll do tonight. But if it's a big cut then that can be taken as the signal that the grand inflation of 2008 is underway. If not then we wait another few weeks.

Official inflation will remain low however.

...and I can't see wage inflation happening unless BRIC wages absolutely skyrocket.

Result....

chops_a_must · 22 January 2008

wayneL said:
As it is, Keynesian excesses have blown a very &^%$ing dangerous bubble that could blow up in all our faces.

Are you sure about that?

Most of the neo-keynesian economists from what I have read, are scathing of modern economic theories, and their influence in politics.

I would have thought this is th fault of Reageanomics and Supply Siders like Kraplow and friends.

This is from the wiki, and what I always thought were the keys to Keynesian economics:

Keynes's theory suggested that active government policy could be effective in managing the economy. Rather than seeing unbalanced government budgets as wrong, Keynes advocated what has been called countercyclical fiscal policies, that is policies which acted against the tide of the business cycle: deficit spending when a nation's economy suffers from recession or when recovery is long-delayed and unemployment is persistently high—and the suppression of inflation in boom times by either increasing taxes or cutting back on government outlays. He argued that governments should solve problems in the short run rather than waiting for market forces to do it in the long run, because "in the long run, we are all dead."

It's the countercycle policies that I'm mainly talking about here. Supply siders advocate cutting taxes in boom etc. lowering rates etc. rather than using that on the opposite cycle. It seems to me it's the supply siders and Kruddists at fault.

wayneL · 22 January 2008

chops_a_must said:
Are you sure about that?

Most of the neo-keynesian economists from what I have read, are scathing of modern economic theories, and their influence in politics.

I would have thought this is th fault of Reageanomics and Supply Siders like Kraplow and friends.

This is from the wiki, and what I always thought were the keys to Keynesian economics:

It's the countercycle policies that I'm mainly talking about here. Supply siders advocate cutting taxes in boom etc. lowering rates etc. rather than using that on the opposite cycle. It seems to me it's the supply siders and Kruddists at fault.

I see the current actions (call it what you will) as a perverse form of Keynesianism. Perhaps that's inaccurate, I can live with being wrong on the label. But I think we can agree that Kraplow (LOL) Greedscam, Uncle Ben, et al have &%$#ed up big time.

chops_a_must · 22 January 2008

wayneL said:
I see the current actions (call it what you will) as a perverse form of Keynesianism. Perhaps that's inaccurate, I can live with being wrong on the label. But I think we can agree that Kraplow (LOL) Greedscam, Uncle Ben, et al have &%$#ed up big time.

I was going to write up something about the death of Rageanomics in another new thread.

What I heard from Bernanke on Friday was totally out of line from everything I had previously heard. "TAX CUTS DO NOT ACTUALLY PAY FOR THEMSELVES!!!!"

I mean... take that trickle down economics!!! All you followers of Krudism! Totally contrary to what has been spouted for the last 25 years! But has been common sense to everyone else.

But yes, I took it as odd that it was a distinct return to "leftist" economics that has been off the map for 40 years. And of course it wont work because the previous cycle was supply sider and prickle-down driven. And you know what happened the last time we had a massive credit contraction and "r"ecession led by supply sider lassex faire economics don't you?

Interestingly the Keynesiest economies didn't fair so badly then, and ended up fighting us... Wonder who they might be now!!!?

History never repeats, I tell myself before I go to sleep.

dhukka · 22 January 2008

I think we should remember a couple of things before getting carried away with Fed rate cuts. Firstly the Fed has a dual mandate of price stability and ensuring full employment, (we'll put aside the fact that the Fed can't really control either and neither should it try). Secondly, excessive Fed easing is one of the reasons we are in the current predicament. They have no duty to, and nor should they, bail out stock market participants.

I'm with Wayne. I don't want the Fed to cut at all but let's face it, they are going to, I'm no fan of Bernanke but I hope he sticks to his guns and doesn't cut before the next FOMC meeting.

Thirdly as I've been saying for some time, rate cuts are too little too late, it will not prevent the US economy from tipping into recession, it will stop the writedowns that are yet to come from financial institutions and it will do little to stop house prices declines over the next few years.

And if you don't believe any of that, just look at where the stockmarket is after 100 bps of Fed easing so far.

chops_a_must · 22 January 2008

dhukka said:
And if you don't believe any of that, just look at where the stockmarket is after 100 bps of Fed easing so far.

Oh come on!

If pollyanna thinking got us into this mess, then why can't it can get us out?

dhukka · 22 January 2008

chops_a_must said:
Oh come on!

If pollyanna thinking got us into this mess, then why can't it can get us out?

OK, Krudlow the Clown, can't wait to see his show tonight, any odds on an aneurism?

ithatheekret · 22 January 2008

wayneL said:
This is a tough one for me because if I was on the FOMC we would never be in the position it is now.

I'd never have cut to the extent it did and rates would be higher now.

To be sure the world would already have had its recession, but it would have been an orderly one, and there would never have been this ridiculous asset bubble.

As it is, Keynesian excesses have blown a very &^%$ing dangerous bubble that could blow up in all our faces.

.25% as scheduled... but only out of spite. Probably more needed for the reasons you have outlined.

I'd like to join you Wayne , my rates would be higher too , but we'd probably end up a future discussion though ............. in a grassy knoll doco .

PS... Wouldn't an emergency cut show the Fed is not in control and has been taken over by the hysteria ?

cuttlefish · 22 January 2008

I voted for inflation, now! (100bp tonight).

If they are going to stimulate an inflationary continuation of economic growth, which would dwarf subprime debt (and of course cause devaluation of the USD as well bringing real US spending power down) then they should do it aggressively now, because once consumer confidence/business sentiment is damaged too much they can't rescue it no matter how much stimulus and it will be another 10 year japan situation which is no good to anyone. (wage inflation will be an important part of the mix).

I agree with what Wayne has said though, they should have raised rates as soon as it was becoming obvious that there was too much cash being directed towards the asset price bubble. That would have broken the back of things early, caused a recession/depression but not as severe as what is likely to come out of this. The regrowth in spending would have been directed in areas that generated real productivity (of value to humans as such - as opposed to building a bunch of houses people didn't really want in areas they didn't really want to live).

The first priority now would have to be stability of the US dollar and the structural stability of the US altogether. Losing a few major US banks might not be a great thing in a country used to rose coloured glasses.

Inflation is possibly the lesser of two evils in this scenario. US citizens real wealth falls, real spending power falls and real wages fall but at the same time subprime debt gets dwarfed, the USD devalues significantly and the US becomes the cheap labour force for China, making goods out of Australian raw materials for export to the affluent Chinese.

Pretty sure they'll throw a war in there at some point before that happens though.

Wysiwyg · 22 January 2008

chops_a_must said:
Are you sure about that?

Most of the neo-keynesian economists from what I have read, are scathing of modern economic theories, and their influence in politics.

I would have thought this is th fault of Reageanomics and Supply Siders like Kraplow and friends.

This is from the wiki, and what I always thought were the keys to Keynesian economics:

It's the countercycle policies that I'm mainly talking about here. Supply siders advocate cutting taxes in boom etc. lowering rates etc. rather than using that on the opposite cycle. It seems to me it's the supply siders and Kruddists at fault.

I had the impression you were early 20`s.If so you`re nous is years beyond.

chops_a_must · 22 January 2008

Wysiwyg said:
I had the impression you were early 20`s.If so you`re nous is years beyond.

dhukka · 23 January 2008

Fed muppets cut 75 bps. The Bernanke put is in

MS+Tradesim · 23 January 2008

LOL. Dhukka, you beat me to it.

If you had a seat on the FOMC...

What's your vote (please select one of options 1-5 AND either 6 or 7)

A 25bp cut

A 50bp cut

A 75bp cut

A 100bp cut

Today (US time)

As scheduled (31 Jan)

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