The Federal Reserve has cut interest rates to 3.5%, a shock three-quarters of a percentage point reduction. Moving to shore up confidence in the US economy...
In fact, I think that exceeding (0.5% cut?) expectations in this way serves to throw petrol on the flames.
IMHO the last thing an over-reaction does is to "shore up confidence", although the markets may yet prove me wrong. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
Someone with a clue, instead of a latex-jowled MarketBot, would have had plans in place well in advance.
(Although I suppose someone with a clue would never have been given the job in the first place.)
The solution is politcally unacceptable - tax cuts for the poor and middle classes, aggressive tax increases for the very rich, especially on speculative non-investment, as opposed to structural project funding, a formal end to the Iraq fiasco with all of its pointless spending, a redirection of the money towards social investment, and very strong changes in banking regulation and reporting to clear the crap out of the system.
Instead we'll see more flapping and spinning, and a big pile of 'Complete surprise - who could have expected...?' from the Very Serious People. Also tax increases for the poor and middle classes, tax cuts for the very rich, yet more spending on Iraq, further cuts in social investment, and some modest proposals towards 'self-regulation' for the markets.
Bah. Morons.
I am advising central bankers next week on strengthening their preparedness. I will be telling them to abandon any focus on capital adequacy requirements. It's far too late for that to have any effect on the fall out. They should focus instead on reviewing and modernising their bankruptcy laws, enabling transfer of customer accounts and nominee assets from failing banks to healthy banks, providing for rapid auction of failed bank businesses and assets, and other practical measures for limiting loss, contagion and debilitating paralysis in the markets.
