The Oil Drum

259 comments on DrumBeat: March 15, 2008

Comments can no longer be added to this story.

mcgowanmc on March 15, 2008 - 9:29am

Walter Bagehot, the patron saint of central bankers, suggested the following basic principles for central banks to help the banks under their supervision to avoid liquidity runs.

http://www.globalresearch.ca/index.php?context=va&aid=8336

A. Only lend against good collateral to avoid losses for taxpayers at a later date.
B. Lend at extremely high interest rates to avoid the facility being used willy-nilly by greedy bankers.
C. Make public the availability of such facilities, so as to prevent doubts and suspicions in the minds of depositors and other creditors.

This week's announcement by the Fed violates EVERY one of those principles.

http://online.wsj.com/article/SB120553736208238121.html

It Is Tough to Value Bear, But It Had Better Sell Fast"

I said it earlier. Stop redemptions/withdrawals to $100 millionaires,
we'll skip the Middleman and just take your bank.

What Lehman Bros will be doing ASAP:

"wire or bring a check to the cashier by 2 pm or you will be sold out"

Comments can no longer be added to this story.

River on March 15, 2008 - 12:55pm

RE: It's the '70s, but not all over again... (page 2) The Fed is aware that it's loose money policy over most of the past ten years would eventually lead to inflation. Eventually is the key word for the economy is huge and has great momentum, making quick course corrections difficult or impossible. Bernanke was so convinced that his study of prior recessions/depressions gave him insight to implement new tools, and that the new tools would work, leads me to believe it is the reason that he was chosen for his current position of Chairman of the Fed. A series of Phsycal and monetary policies have hidden or delayed inflation...Off shoring of American jobs debased the workers ability to bargin for wages, attacking unions did the same, importation of cheap goods from overseas held down prices, blowing bubbles in various sectors like housing gave the appearance of a strong economy, the dot com bubble did the same, hiding the real economic statistics made all seem well...All were bullets that forestalled the inevetible or terporarily hid the inevitable from the average American. Those policy 'bullets' are pretty much used up and now we face reality...but the Fed has yet to give up on reflation, which is going to make reality worse when it arrives full force.

...snip..."In choosing to aggressively reflate, the U.S. is pursuing a high-risk strategy that threatens to increase inflation and macroeconomic volatility in the years ahead," Mr. Bond said. "Any central bank that so clearly targets growth over inflation is destined to lose control over inflation expectations."

Interest rate cuts have also gutted the U.S. dollar and only exacerbated the inflation problem, other analysts say.

"The upsurge of food and energy prices in response to the Fed's deliberate trashing of the dollar has significantly worsened consumer confidence and real incomes," said Charles Dumas at Lombard Street Research in a research note on Friday.'...snip...