Friday, November 2, 2007

FOMC's 5 O'Clock Follies Continue: Bernanke's Halloween Trick

Great Depression Syndrome Meets Vietnam Syndrome

This week the Federal Reserve Federal Open Market Committee (FOMC) met, and Chairman Ben Bernanke announced another cut to the benchmark Fed funds overnight interest rate (25 basis points (bps)).

Bernanke's surreal tap dance about the housing bubble crash, subprime mortgages mess, global credit crunch, inflation, unreported M3 money supply, and incipient US recession is reminiscent of the Vietnam War's "5 O,Clock Follies," the farcical US government press briefings (in Saigon) of war progress for reporters willing to print the government's canned press releases as news stories.

To recap, the Fed's position is:

"There is no housing bubble. There is a housing bubble but it will not crash. It is crashing but it will not affect the rest of the economy. It is affecting the rest of the economy but it is contained. Well it wasn't completely contained before but it is now. Don't worry we contained it again. No really this third time it's extra contained."
The most oxymoronic internet defense of Fed policy was that the containment was "expanding," which sounds as effective as the containment by 2 other government programs, the New Orleans levees and the Teton Dam.

Bernanke realizes that this might look uncontained to the untrained eye:

No comments: