World markets have panicked and the Dow futures are already down 500 points. I think there is a good chance that tomorrow’s NYT print headline will be about the plunging markets.
It seems pretty clear now that Bernanke has not been aggressive enough in any attempt to fix what is broken. The Fed’s actions have not instilled any confidence and have not assuaged any fears. Now is the time for decisive and strong action of ANY type.
Jim Sinclair predicts that bad things will happen if the Fed does not take emergency action to address the markets:
If the Federal Reserve fails to take emergency action before the US opening tomorrow, you will see the DJII open down 1000 points as the public joins this professional panic…. It is a better wager that the Fed will immediately drop rates by 1 full percentage point. It is a slam dunk that all Western central banks will cut loose and flood the world with more liquidity than ever seen before. If central banks fail to cause a torrent of liquidity from their unending check books then $450 trillion of derivatives will take us to the world of Mad Max. Monetary inflation ALWAYS causes PRICE inflation even without strong business conditions. Prices of hard and transportable assets rise regardless of business conditions. All currencies fall and the stronger currency is the laggard in the race to the bottom of the tank.
I’ve had a small e-mail conversation with an old friend regarding the markets. My first answer to his questions were somewhat idealistic. The Fed shouldn’t reward bad behavior by bailing out the banks or the people to whom they loaned money. But there is no reason to cut off the nose to spite the face was his reply. Providing liquidity in this situation is necessary he said and also that he he thinks a healthy dose of improvidence is good in the long-run. “Risk taking is necessary for economic growth, and considering the structural drags in our economy, we have to have dynamic, rambunctious sectors.” Totally agreed. This is probably one of the largest reasons for this country’s success! Our system allows for experimentation and risk-taking and, unlike other cultures, we do not punish our risk-takers who fail.
As I said in my first response, things like this have happened to our economy in the past. I am confident we can weather this storm as we have weathered previous others, painful though it might be.
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