BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After...

BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? Were all these rate hikes necessary? Forget even about current credit-market conditions that are now screaming for a rate cut. The yield curve had inverted long before the current crisis, and an inverted yield curve (where benchmark short-term rates exceed benchmark long-term rates) has traditionally been a precursor to a recession and a clear indication that Fed policy is too tight. So it can be argued that the Fed played 'bait and switch' with the nation's homeowners, moving from an unnecessarily loose to an unnecessarily tight monetary policy even as the mortgage debt was being piled higher and higher. And now per the above piece, almost a trillion dollars in ARMs will become significantly more expensive over the next two years. Ben Bernanke bought the bogus deflation scare in 2001 – hook, line and sinker. And now – when deflation is actually a threat through house-price implosion and ARM resets – he worries about inflation. If he proves to be equally wrong about the economic backdrop this time, the consequences will be disastrous. A 50 basis-point rate cut is needed, preferably before the next Fed meeting on September 18th. It is needed not for the purpose of bailing out profligacy on Main Street and on Wall Street, but to correct the consequences of the Federal Reserve's excessive rate hikes. And I can come as close to guaranteeing as I possibly can when speaking of the markets that if September 18th comes and goes with no such cut, the markets will not long thereafter force it out of the cold, dead hands of the current Fed Chairman. In a sense yes, those rates hikes were necessary, if for no other reason than to shut the door on speculative lending. The credit boom party lasted far longer than I thought and it ended with a bang mid-summer just as the housing market ended with a bang mid-summer two years prior. For two years in between, speculation went from housing to mergers, to debt funded share buybacks, to LBOs to the top being formed with Chuck Prince, Citigroup CEO proclaiming 'No End Soon to Buyout Boom' , the Fed was simply going to have a hard time cutting, no matter what housing was doing. And as Schaeffer points out, the irony of Bernanke's worries is remarkable. There is a clear danger of a deflationary credit crunch now, with Bernanke worried (or supposedly worried about inflation), but where was Bernanke when interest rates were 1%? The entire world is now chocking on massive amounts of speculative debt, and central bankers are in a panic over what to do about it (see ' is simply mistaken. The only way to correct the consequences of the Fed's actions would be to have not built a housing/credit bubble in the first place. So while Schaeffer is correct with his assertion that the Fed made mistakes on both ends, and also correct with his statement ' If September 18th comes and goes with no such cut, the markets will not long thereafter force it out of the cold, dead hands of the current Fed Chairman The content on this site is provided as general information only and should not be taken as investment advice. All site content, including advertisements, shall not be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of sponsors or firms affiliated with the author(s). The author may or may not have a position in any company or advertiser referenced above. Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.