Subscribe to this blog's feedAs the Fed cuts rates by 75bp (for a total this week of 100bp)...
Nouriel Roubini writes:
This is the worst US financial crisis since the Great Depression and the Fed is treating it as if it was only a liquidity crisis. But this is not just a liquidity crisis; it is rather a credit and insolvency crisis. And it is not the job of the Fed to bail out insolvent non-bank financial institutions. If a bail out should occur this is a fiscal policy action that should be decided by Congress after the relevant equity holders have been wiped out and senior management fired without golden parachutes and huge severance packages.
And Paul Krugman comments that, in a zero-real-inflation environment, there's little the central bank can do:
Here’s one way to think about the liquidity trap — a situation in which conventional monetary policy loses all traction. When short-term interest rates are close to zero, open-market operations in which the central bank prints money and buys government debt don’t do anything, because you’re just swapping one more or less zero-interest rate asset for another...
As of 10:38 this morning, the one-month Treasury rate was 0.57; the three-month rate was 0.825.
Are we there yet? Pretty close.
and goes into more detail here:
for many types of people who were able to borrow two years ago, they now can't - at any interest rate. We're looking at the classic pushing-on-a-string problem, where the Fed can cut, but it's not clear it does much for the real economy.
Cheerful stuff.
