Friday, August 10, 2007

Federal Reserve's $38 Billion Binge Bails out Markets--for Today

The Federal Reserve cannot shake the easy-money monkey off its back.

The Federal Reserve slipped out and found its crack dealer again and burned up another $38 billion in emergency liquidity to prop up housing and stock prices even though they might still be overpriced at current levels.

Do you feel good now, Chairman Bernanke? You needed $24 billion yesterday. You needed $38 billion today. What about Monday? How much will you need on Monday?

"Fed funds climbed above 6% on Friday, reflecting uncertainty in the financial system, and the Federal Reserve Board said it was providing liquidity to facilitate the orderly functioning of financial markets" (Forbes).
If we all marched off a cliff, would it be OK if we did it orderly?

Has the Federal Reserve ever heard of Adam Smith and the invisible hand of the market?

The Fed funds climbing above 6% is the market trying to tell the government that politicians are trying to force an unnatural, unsustainable policy--i.e., not only should the Fed not cut rates, borrowing is still too cheap.


Saving Without A Budget said...

You bring up a very good point in terms of stocks and homes being over priced. I think the housing market will realize another 20% drop (at least) before it finally finds its footing. It still has to shake out all of the people who bought homes they couldn't afford and all of the investors who bought properties hoping to make a quick buck. Not to mention the fact that we still have to deal with the fallout of tighter (and more responsible) lending practices.

Either way, I'm afraid a lot of people are going to lose their shirts on this one.

J at IHB and HFF said...

Hello. Yes, the problem is that the Fed bailout prolongs this bubble and invites the next one (moral hazard).

Thank you for the comment and please visit again.