Thursday, February 14, 2008

Bernanke to Wall Street: "I'm Your Bitch"

From Marketwatch:

Federal Reserve Chairman Ben Bernanke said Thursday the central bank was ready to cut interest rates further if fresh signs of a weaker-than-expected U.S. economy emerge.

The Federal Open Market Committee, which sets Fed monetary policy, "will be carefully evaluating incoming information bearing on the economic outlook and will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks," Bernanke told the Senate Banking Committee in prepared testimony.

The Fed has done a lot to stave off a recession but stands ready to do more if the outlook darkens, he said.

(Sung to the Tune of Ghostbusters) When interest rates are negative after adjusting for inflation, who do you call? Bernanke!

I realize that 1.) Bernanke's in a really bad place, 2.) No one wants to do nothing when the world is falling apart, 3.) Saying "lowering interest rates won't help" isn't an answer anyone wants to hear, and 4.) saying, "The financial intermediary system really screwed up and now they need to pay the price" isn't an answer anybody wants to hear either.

But the signs are very clear that interest rate cuts aren't helping. The credit markets are still frozen. And the problems are spreading. The student loan market is now tightening. Junk Bond Yields are spiking. The CDO market is experiencing more problems. The monoline insurers are a breath away from a credit downgrade. Low interest rates won't help when the issue is counter-party risk and saving your own financial ass.

So maybe the Fed should start thinking about their other mandate -- price stability. If they can keep prices stable through all of this mess we might be better off in the long run.