Monday, March 10, 2008

The urgency of a recession (fg)

Now things constipate. Many of the economic offices of global investment banks switched their most-likley scenario to "recession". This is due to FED minutes, FED speeches of the last few days and latest U.S. payroll statistics. You may find a review on WSJ Real Time Economics when scrolling down the post history. In addition, as it is obvious in times of massive uncertainty and a featureless optimistic view that the FED will be able to prevent this upcoming recession, market participants operate with high risk aversion. We can see this in surging bond spreads which reflect both the real macroeconmics risks and the legitimate unwillingness of investors to trust each other. This recession is curative from at least two points of views. Firstly, amv does not stop highlighting that the market correction is neccessary to get relative prices back on track again. And secondly, not only markets with its players have to learn lessons from recent boom-bust cycles triggered by the FED. FED members themselves should learn the most by appreciating that a policy of ease money is not the way to provide a sound set-up for a well-oiled working economy! We can also see moral hazard on part of the FED governors. For instance, past policy actions of boom-bust king Greenspan that had a below one-percent interest rate as result, just exemplify recent rate shifts of helicopter Ben. In this respect we could conclude that Ben realized that he will not get punished by markets and politicans when pursuing a policy of boom-bust. Indeed, the public rendered homage to his antecessor and his policies. So, Ben might ask why betting on another horse and changing alleged successful habits? We all know why he should ..... and a recession would help to make him learn this lesson.