[quote]666Rich wrote:
[quote]Gettnitdone wrote:
Y’all need to realise that the Fed saved the god-damn U.S economy post-GFC. There was absolutely no liquidity in the market after Lehman Bros. and Wall Street started having a myocardial infraction. Wholesale market were drier than the Sahara desert. The Fed’s first rounds of QE did a lot from a technical stand point in that they lowered rates even further (essentially 0) but also from a confidence stand point. Believe it all not investors actually like it when Bernanke goes up there and says he’s going to do something.
Operation Twist last year was a success. I just heard they’ve also done a bit more this year as well. What they’re doing is basically flattening the yield curve to lower the cost of capital so firms can start investing again. You won’t hear that from Rick Santelli or any other miseducated ‘expert’ on TV.
I’m not going to spend time explaining monetary policy or fiscal policy but just emphasize that leverage is essential in growth. Strong credit markets fuel economic growth.
On a final note, the economy is only shit compared to the period 2001-2007 where it was deceivingly good because of mispriced credit. Ironically, easy money was what brought down Wall Street (because they couldn’t properly price it) but cheap money is what will get the U.S out of its funk. Argue about fiscal policy all you want (and I personally think the government should lower its deficit) but have knowledge before you start evaluating the Fed and monetary policy.
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Investors like when bernanke says hes going to do something because the markets respond to that liquidity or mention of it. The gains are illusory and people can capitalize on it while value remains stagnant.
The Fed also created a huge problem with letting one bank fail and then rescuing others. This creates uncertainty which no market likes. Furthermore, I now believe the too big to fail rescue scenario is decided arbitrarily by the Treasury Secretary. Sounds very nepotistic to me, and a creator of future uncertainty.
The lender of last resort should be conditional useage if and only if a bank has held a proper amount of reserves (of which they have been allowed to hold far less than they should).
People DO have varying views of Monetary policy, but the political handcuffs on the Fed also influence it. The dual mandate is bullshit fairly opposed. I think they would be alot better off for growth sticking to inflation targeting only.
Inflation WILL come back to bite us in the ass.
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Extraordinary circumstances call for extraordinary measures.
I don’t necessarily have a major issue with too big too fail because I understand the rational for it at the time. However, the Treasury and Federal Reserve have vehemently stated there is no more too big too fail.
The nature of the credit derivatives market, which was at the heart of of the crisis means a lot of financial institutions are subject to counterparty risk. One bank’s failure means the offsetting positions on its transactions are worthless and you get the domino effect we saw. AIG was at the heart of many derivative transaction networks and needed to stay alive. Of course now derivatives associations have strengthened their markets by infusing more standardization and collateralization policies.
What makes you say the Fed is politically influenced?