Valium 0.5%

Yesterday, Dr. Bernanke, after seeing that the recent liquidity injections to patients not cured of the evil of "subprime" thought that maybe the market was suffering from what was an emotional disorder, so sometimes it is better to attack the mind and that it was responsible for curing the body. So I decided to pull the Valium in a dose too fat, no more and no less than 0.5% of which have sat very well with the stock markets, with the biggest rise in the last 4 years. The part shown by the doctor says the following:

"Economic growth was moderate during the first half of the year, but the adjustment of credit conditions has the potential to intensify the correction in the housing sector and restrict economic growth in a more general"

Unfortunately there is a dog and fleas are all skinny is that the post has a Valium very dangerous side effect that is the price of oil, which yesterday reached more than $ 82 a barrel, if this is a complication with a fever of 40 º and if we look locally, we can see that, Spain's external debt soared and now represents 1.5 times the GDP, more than double the 4 years ago, as you can see if we are.

The medicine is not free of moral hazard, obviously not talking here of a euthanasia, but if it could be compared to a party, are to save the mother or the child?. The Wall Street Journal he raised yesterday before falling rates in the following article (translated by Carpathian):

It is not likely to keep rates only to punish the speculators. To the Fed that would be as if the firefighters stopped a fire that consumed an entire people just to discourage people who smoke in bed. If the president of the institution, Ben Bernanke, noting that the drastic fall in property prices undermine economic growth, could recommend a further reduction in rates now.

However, the notion of "moral hazard"-that is, protecting individuals from the consequences of their irresponsible behavior only encourages this kind of behavior, is in vogue and is in the minds of officials from the Fed. The fact that the entity has reduced the rate in response to financial turmoil has led to the earlier perception-real or not-that the U.S. central bank was rescuing investors, contributing to the subsequent rounds of speculation.

Charles Posse, president of the Federal Reserve Bank of Philadelphia, said in a recent speech that the Fed should allow "a necessary correction in asset prices." In his opinion, "otherwise you risk a misallocation of resources and risks, in addition to (create) problems of moral hazard. Ultimately, this could increase the risks to the financial system, rather than diminished. "

What do you think of the decision of the EDF of 0.5 points lower rates? Are you coming with more downs? Will the trend changed? Does it mean postponed the pricking of the bubble? Pinchao this is it inevitable?

Written by Carlos Lopez on Sept. 19, 2007 with 84 comments
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