Bernanke To Recession, "When I Shoot, You Go Down!!"

"The ISM composite non-manufacturing index data came in well below even the most pessimistic expectations, Merrill Lynch economist Sheryl King said, increasing the likelihood that the Federal Reserve will cut key interest rates before the Mar. 18 Federal Open Market Committee meeting."


Here we go again....didn't we just get a 125 bp cut in Fed Funds over the past 2 weeks?? Isn't anyone aware of the fact that this has been one of the fastest declines in Fed Funds in the history of the Fed! Let me tell you what will happen if we do indeed get yet another inter-meeting rate cut....the market will crater and crater bad (unless we crater bad before that which is highly probable). Wait wait wait, hold on a second, I thought the market loved rate cuts!? Yes, they do, but only when the market believes that 1) The rate cuts are actually doing something to stabilize the economy, and 2) That the Fed has the situation under control. Yet, if the Fed decides to cut between meetings yet again, it signals several things to the market:

1) It signals that the Fed is in panic mode.
2) It signals that the economy is in much worse shape than we think.
3) It signals that the Fed does not have time to wait 9-12 months for a rate cut to work its way through the the economy.
4) It signals that the Fed has finally acknowledged that it is way behind the curve in cutting rates.
5) It signals that it could care less about the value of the US dollar.
6) It signals that it could care less about inflation.

It further points to the fact that the Fed is actually slowly running out of bullets to cure this ailing economy. You see, the Fed only has so much cutting power...it cant cut rates below zero! So the more the Fed cuts, the less ammo it actually has left. And once the market realizes that these finite number of cuts are doing nothing to cure the credit crisis, or to get people spending again, the financial markets will begin to panic.

Yet what I will say, in all fairness to Bernanke, is that he is in fact dealing with a confluence of very negative economic headwinds. The current economic environment is extremely severe with regard to strains on the US economy. We have a major credit crisis ongoing, plummeting US dollar, unstable housing market, consumer debt loads climbing, limited access to credit markets, increasing layoffs, unstable global financial markets, high probability of a US recession, declining GDP projections for emerging markets, declining consumer confidence, and rising inflation. Yet, to say that the answer to all these problems is a series of Fed rate cuts is just ridiculous...what the Fed needs to do more than anything right now is to regain credibility, appear calm, and at least make it look like it has the whole situation under control. Once we lose that we're screwed.

I can't help but wonder if Bernanke isn't starting to feel like the Asian guy trying to kill Bullet Tooth Tony in Snatch lol.....Recession = Bullet Tooth Tony, and Bernanke = the Asian Guy lol :)