Piyush

It's Time For Economists To Make Way For Pragmatists

I agree with most of what he has to say here. Banks/Lending institutions are hoarding cash to rebuild the Balance Sheets instead of lending. Like the author, I am no economist and not even a Front End'er in banking but I like to learn. That aside, I have been shouting from roof tops (given the buildings I have access to are only few stories tall) that the liquidity/credit crunch would have been much easier to handle, had the Fed only lowered rates somewhat, ignored the street and forced via NY Fed the banks to loan at the discount window, expanded ofcourse in terms of collateral & time (90 days, ABS & other sound paper) while removing the penalty rates. This would have provided ample liquidity to banks for lending, with no penalty and a breathing room/time long enough for continuing to lend rather than spasming. Other simultaneous actions like T-Auctions would help as well.
Now we are in a place where, savers like me are penalized while my debt (student loan only) keeps rates constant with no recourse but to vent on sites like this. Helicopter Ben even wrote about this kind of scenario in his thesis & papers - buying growth by printing paper money but wreaking havoc in the inflation equation but is making the mistakes he so eloquently derided.
The weak dollar is all dandy unless you take stock of the industrial/manufacturi... strength of this country - depleted over last 16 years through lopsided free trade agreements like NAFTA. They need to be fixed via some semblence of renegotiation - reneging/repealing wont do it. SO given lack of past investment in industry, imports are not going to grow dramatically - US has nothing to import!! Chinese are hell bent to keep Renimbi pegged and will do so for the short term, further killing exportability of competing goods if they ever get manufactured here.
This effect can be seen in the Yield curve as well - the 2 yr yield is lower than the 3 & 6 mo. yields - inflation expectations in short terms are much lower - again 2 reasons China & flight to safety.
I think no more rate cuts would only work now (i would love rate hike but that would cause panic in a jittery market) with still opportunity to work the discount window & T-Auctions. Let the Fed be the JP Morgan of this day & age and be unafraid to take action.
On the other hand, let the writedowns flow through - do not intervene in markets and soil opportunities for investment!!
Well I have ranted enough for today.
Can reach me at [e-mail] if you think i have structural mistakes in my argument!
Ciao..