The Credit Crisis Financial Stocks Short Journal

Quote from Daal:


Greenspan on his book says that a 'just-in-time economy needs just in time monetary policy'. Looks like the Fed failed at that during the Leh depression as Velocity dropped way faster than they boosted the money supply(back then through 'credit easing' and the alphabet soup of lending programs that went unsterilized) as a result nominal GDP went down
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This is why I believe both a gold standard and Friedman's 'lets use a computer who prints a fixed amount of money instead of the Fed' ideas wont work in a modern economy. Velocity is too unpredictable, if there isn't an institution fine tuning the money supply depending on whats is going on with the Velocity of money, essentially the price level would turn up to be highly unpredictable too. And for decades financial contracts(such as debt contracts) have been written with expectations of long-run inflation in mind, if you disrupt that, real GDP will suffer(temporarily) because no one was expecting that
 
There seems to be going on an interesting boom bust cycle going on right now. Fed signals easing intentions because inflation expectations went down a lot, markets start price in additional QE, commodities rise, dollar falls, inflation expectations rise, Fed feels like a large program is too risky because expectations have recovered as a result they under deliver whatever the market demands from them
This jump in expectations almost surely will prevent the Fed from being too aggressive and taking a more cautious approach. The question is, will the market throw up when they find out
http://noir.bloomberg.com/apps/quote?ticker=USGGBE10:IND
http://noir.bloomberg.com/apps/quote?ticker=USGG5Y5Y:IND
 
Hilarious, now Bernanke is talking about extending the extended period. Yet a while ago they were all saying how extended period was NOT a time table, how come they want to extend it now. Extending assumes it will go for more TIME. As usual you have to decode Fedspeak
 
As things currently stands I dont believe the Fed will change the extended period language. Exactly because of that inflation expectations issue, they have been already forced to do QE. I dont think they will go all-in just yet
 
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