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« Time Frames and Diversification: Are ETF's Different? | Main | A Consumer Guide to Pundits: Window Dressing »

December 25, 2007



"If I believe that the Fed will make the problem go away that lowers real risk spreads and in and of itself can reduce the problem."

Karl, what are you trying to say here? I think you're saying "If the Fed is successful, as I believe, that lowers real risk spreads, and in..." If this is what you meant, why do you believe that--how would the Fed affect that? Do you think they've already pulled all the levers they need, or are you anticipating further action (either traditional or something like the recent auction)?

Great site Jeff, it's my homepage now (switched from doom and gloom [and liberal] Barry Ritholtz, then switched again from Don Luskin). None of us are perfect thinkers, and I appreciate your skepticism.

Bill aka NO DooDahs!

9th grader in which country? LOL!

Tulip Kweli

Nope. They use the Taylor rule. (The linear equation that a 9th grader knows how to use.)


Shrek - When you talk about credit expansion over the last couple of years, what measure are you using?

I think that there are many misperceptions about the money supply and various measures. I am planning a few pieces on that theme, and I hope you will continue to comment.




Karl - Thanks for your sharing your thoughts. It is especially important for our readers to hear thoughtful perspectives. As a faculty member in an inter-disciplinary program you get daily exposure to a range or well-informed opinions. I miss those days!

I believe that the Fed thought they were making timely statements, but I guess that shows a lack of feeling for the markets.

Thanks for your comment.



The fed has realized that the amount of credit expansion the last couple years is not sustainable at any interest rate. The best course is try to manage the downturn as best as they can and provide liquidity as best they can. If you are bullish you have to believe that the credit system is going to go into orbit again sometime in the next couple of months. I dont see it happening.

Karl Smith

I think the Fed is in rough position and that where there have been mistakes it has mainly been on the public relations front.

This Fed has taken a more academic approach in its interaction with the financial community, unlike the Greenspan Fed which was somewhat more paternalistic.

While I think thats good in theory, pun intended, I don't think the community has digested it well. Sentiment matters. Or if you want to be more econ nerdy, expectations matter. If I believe that the Fed will make the problem go away that lowers real risk spreads and in and of itself can reduce the problem.

That allows the Fed to hold back its firepower for when things really start to look ugly, while at the same time hedging the inflation risk.

So, that in a nutshell is my concern over fed communications. Other than holding in Oct and then cutting 50 bps in Dec (which is arguably more behind the curve) I agree with the policy.

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