December 4, 2007
Three Month Treasury-EuroDollar (TED) Spread
As of November 30th… the chart is already out of date. :-) Once I figure out how to get this chart on the Bloomberg, I’ll update the post.
Meanwhile, here’s Gary Stern, president of the Minneapolis Federal Reserve Bank, in a November 26 interview:
“‘I’ve not made up my mind what to do yet,’ said Stern, one of the members of the FOMC. ‘Why would I? There’s two weeks to go. We’ll see what we learn.’”
You have to wonder what planet these bureaucrats are living on.
Cat: | Time: 2:34 pm (utc+8)
December 4th, 2007 at 3:02 pm
Well, one day you’re ripping the Fedcrats for vindicating your “short the USD” drumbeat, the next you’re insinuating (I think) that they’re stupid because they aren’t sure whether inflation or UK banking stresses are more important. Which is it?
The “bailout put” is what’s perpetuating the crisis. If the weak hands knew they weren’t going to be rescued, they would fold, the market would puke violently, and the market would be ok. Instead, every central bank has a heart attack with each twitch of LIBOR and extends more paper to the very hands that need to be flushed out.
Too many hands are in this poker game. It’s not Bernanke’s job to subsidize the weak hands beyond a certain point to which volatility has raised the stakes.
December 4th, 2007 at 3:06 pm
The current Fed thinks volatility is the enemy. That is the root cause of this problem.
I think Bernanke has been looking for an excuse to cut, and eliminate the “dollar savings glut” by inflating it away. It’s certainly working, but the stresses are already showing up in the eurozone. The “Pigs,” Portugal Italy Greece Spain, will not going stand by and watch their manufacturing base be destroyed just because RMB (?) and JPY are perpetually undervalued and America refuses to further afford a 6% annual trade deficit.
December 4th, 2007 at 3:42 pm
Cartman: Where’s the contradiction (and when did I rip anyone)? The Feducrats (did you coin this?) are between a rock and a hard place … they must ease, inflation and plummeting dollar be damned, because the entire system is under such severe strain. For an FOMC member to say, ho hum, let’s wait around two weeks and see what else cracks strikes me as slightly loony.
December 4th, 2007 at 3:53 pm
I did coin ‘Fedcrats.’ dunno about “Feducrats” ;-)
On the one hand you have had this general narrative that the dollar is headed down, down, down, due to inept American institutions and an overconsumptive society.
On the other hand, by lowering interest rates very rapidly, you run a very good chance of increasing inflation and subsidizing the habitual bingeing that you always point out when you say, “stay short the USD.”
Seems a bit mutually exclusive to me
December 4th, 2007 at 4:19 pm
Cartman: I added the “u” for pacing and elegance. :-)
My “stay short the USD” narrative (harangue?) usually relates to structural, secular (generational) problems, i.e. the US losing its competitive edge. The “overconsumptive” society, best represented by people who are 100 lbs. overweight battling with their SUVs for the parking spot closest to CostCo’s door (maybe two out of three Americans fit this profile now), is also a terrible problem and points to a very sick culture. (Aside: there’s a great scene in About Schmidt, an otherwise so-so movie, where Jack Nicholson parks his Winnebago across six spaces at the supermarket.)
There will be a countertrend move at some point — a shift toward frugality, healthy living, getting “off the grid,” and withdrawing from the rat race. But these trend changes take time, although a massive financial sector crisis should accelerate this shift a bit.
December 4th, 2007 at 4:44 pm
Don’t get me wrong, I agree with you in a lot of ways. I just think all these howls and screams to cut, cut, cut, devalue, devalue, devalue the USD, to save out homeowners and stupid bankers, are a symptom, not a cure, of the consumptive malaise.
December 4th, 2007 at 5:09 pm
Cartman: Sure, it’s no cure; the cuts are necessary to stave off the systemic failure that dumb borrowing/dumb lending got us into … the dollar devaluation is a structural issue and the inevitable rate cuts to come will simply accelerate its decline. I don’t think we disagree about anything, now how about another drink?
December 4th, 2007 at 11:32 pm
The FOMC knows it has only two choices - cut (and cut and cut) or observe the collapse of the credit markets from a position of splendid isolation.
Re: The USD - **eh** shrugs.
Re: Moral hazard - get over it.
December 5th, 2007 at 1:06 am
Ts, ts, all the poor man said was that he has not made up his mind two weeks before he has to cast a vote. That sounds very sensible to me.
December 5th, 2007 at 1:49 pm
Andreas: These are not sensible times, but you’re right, I was in a cranky mood when I read that article. I just think the people at the Fed aren’t necessarily the best and the brightest, including ex-Chairmen who are popularly known as “Maestros” … the whole deification of the Fed by so many sickens me.