"The house we hope to build is not for my generation but for yours. It is your future that matters. And I hope that when you are my age, you will be able to say as I have been able to say: We lived in freedom. We lived lives that were a statement, not an apology."


Wednesday, December 17, 2008

The Fed Rate Cut

If the purpose is to raise confidence in an economy plagued by inertia and thereby loosen credit and cash flow, how does the Federal Reserve's rate abolition yesterday accomplish it? It is a tax on credulity to accept that confidence in the health of the economy increases in response to a desperate act by one of the economy's central entities. If the times can be so bleak as to justify such drastic measures then you'd be a fool to feel bully about releasing capital.

Accepting that the Wall Street Journal
is right – as I do – that the basic ailment of the economy is a surfeit of uncertainty, than this gambit hardly suffices as treatment. If anything, it looks like the kind of thing that put us in this mess, which was years of handing out credit like they hand out rosary beads in a Catholic Church.

As the Journal writes, "Banks, consumers and business are dug in their foxholes, conserving their cash until they believe the worst has passed. Meanwhile, investors around the world are deleveraging to reduce risk and cut their losses, a process that the Fed can do little about." Hail Mary's are not going to encourage anyone, and the groundhog will not be enticed from its hole until the mania above has stopped and the terrain has stabilized.

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