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Let's kick off the 2000 comparisons
Thursday, August 16, 2007
Now is as good a time as any to look back at Fed policy during the bursting of the last bubble to get a better sense of what to expect during the bursting of the current bubble.
Recall that it wasn't until an emergency meeting in December of 2000 that short-term interest rates were slashed by 50 basis points - nine months after the Nasdaq had peaked and after a decline of more than 50 percent as indicated in the box above.
Apparently, the bad stuff took nine months to show up in the real economy.
8 comments:
I thnk using 2000 to predict Fed actions for this bubble is an error. In 2007 inflation is a greater threat than 2000. This limits the abiity for the FED to cut rates.
If markets continue to deteriorate as they currently are, inflation will soon be irrelevant.
The markets' run up was based on "irrational exuburance" to begin with. The Dow at 12,600 would be looking good if it hadn't run up to 14,000 first.
Tim,
Stocks aren't driving this economy. You're better off looking at RE. I think it won't take 9 months for the effects to show up in the economy. All the indicators have already gone -ve. Fed is just choosing to ignore this and recite the nonsense govt metrics ... mostly to look unconcerned or firm ... for now.
The real bloodbath will begin when people's credit cards stop working.
i am wondering about those credit cards. being in a touhg spot financial wise i resorted to 0-1% "promotional offers" and managed to get 35k worth for now, which i can manage without paying a penny over. banks probably sold my loan which is supposed to go 15-20% if i default. someone is holding that loan thinking i will default. and someone will default in same circumstances. it is really easy to get 0% loans nowdays, who are the people who will pay for my loans after all?
anon 12:50 - I was referring to the credit bubble (though it's easy to see how you could be confused, given the number of bubbles that are now popping)
aaron & anon - somehow the banks will probably still make money
i think institutional investors are toying with the Fed.
They've probably already bought up sub-prime and corporate bonds.
The gridlock in overnight lending seems totally rigged. They are just giving Bernanke an excuse to pump up the money supply. If the gridlock was real, the stockmarket would have tanked much much more.
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