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The Easy Money Withdrawals



August 31, 2007 – Comments (6)

The market's reaction to Bernanke's reluctance to really pull out all of the stops and flood the market with easy money to "solve" the credit problems has been pretty funny. It makes me think of an addict going through withdrawal from a drug (or shopping for that matter...).

The rant by Cramer, which I'm assuming most have seen by now, was probably the best example -- he was practically foaming at the mouth screaming, "give me the money! give it to me!" I'd say the same goes for commentators and executives that have been vilifying Bernanke, saying that he's too much of an academic and just doesn't understand -- "you don't understand me! I need the money!" Just picture somebody detoxing and writhing on a bed in a locked room. I love it.

Only time will tell whether "no-helicopter" Ben is doing the right thing, but I've been amused nonetheless.

Interestingly, at this point I would be much happier if the Fed didn't lower interest rates in September. And I don't mean that from a "the evil bankers should suffer" perspective. Given Bernanke's perspective on the market turmoil, a rate cut in September would mean that he sees serious threat to economic growth. That's not good. On the other hand, if they don't cut rates, it suggests that they see the situation working itself out at least to some extent, and that the economy is holding up.

Of course, I don't fool myself into thinking the market participants will see it that way, it would be like telling an detoxing alcoholic that a glass of milk would be healthier than a Jack on the rocks. It's true, but I doubt he'd care.


6 Comments – Post Your Own

#1) On August 31, 2007 at 1:40 PM, floridabuilder2 (98.77) wrote:

The damage is already done in housing and real estate, 1/4 pt will not solve the extensive list of problems out there.  The people who are screaming the loudest (K Hovanian is going to meet with Bernake) are the ones who stand to lose the most.  These people whether hedge funds, builders, investors, banks, investment bankers, etc... made huge risky bets so that they could make a lot of money... now they are crying that the american people are getting hurt if the fed doesn't do something... admit it hovanian, you don't care about homeowners who are going to lose their home or can't get a zero down mortgage to buy your homes, your pissed cause the value of your stockholdings went from 630m at the peak of 2005 to 98m today and could go to zero.... boo hoo... only 98m left

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#2) On August 31, 2007 at 1:53 PM, TMFKopp (97.73) wrote:


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#3) On August 31, 2007 at 6:12 PM, camistocks (24.33) wrote:

Jim Cramer is a showman and this whole thing was exactly that, a show. He doesn't need money, believe me, he is a smart guy.

And Ben is also doing a nice show playing Mean Ben, because his helicopter fleet and the printing presses are working at full pace... ;-)

reconstructed M3 money supply, which is the broadest measure of money.



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#4) On September 03, 2007 at 1:11 PM, TMFKopp (97.73) wrote:

Peter -

Fair points. I would never argue that Cramer is a dummy -- even smart people can get carried away.

As for the money supply, I certainly understand the significance of the growing money supply that your chart points out. However, I believe the fact that Bernanke is "playing" mean Ben is significant. With so many people having tantrums about the Fed Funds Rate I think it's really important to note the message that he's sending. In fact, that he's actually raising the money supply to help lubricate the markets, while simultaneously sending this "no bailout" message is probably even more significant.

I get the sense that you're no fan of big Ben, but I have no complaints about his work so far.


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#5) On September 06, 2007 at 4:23 AM, camistocks (24.33) wrote:


Actually you're right, Ben is doing a good job to keep up the confidence in the Fed system and it's also good that many of the most speculative investment vehicles will disappear. The Fed always did that, also under Greenspan and then they eased "suddenly".

I have no issues with Bernanke himself, it's just the lies (statistics) the Fed (=the system) are telling to make things sound better than they are. But then again they have to, because if the Fed would say, that it might get pretty ugly in the short term, some people/market participants may overreact and cause more damage than needed.

Anyway, it's also fun to make fun of Heli-Ben and the Boys, and I may also have been carried away, or, let's call it enthousiastic... ;-)

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#6) On September 06, 2007 at 12:31 PM, TMFKopp (97.73) wrote:

Fair enough. I see where you're coming from. I guess I just see it as part of their job to project a more measured, big picture view of what's going on. Like you said, panic from them could send some market participants into a chicken-with-its-head-cut-off dance.


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