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Fed Loses Ability to Control the Crisis!
by: David Barker, Head Trader, LOM
Good Morning!
Looking at the screens this morning and reading in reading the news wires, it is abundantly clear that markets are losing confidence in US officials ability to control the current financial crisis.
The dollar is under siege everywhere on the foreign exchanges, gold is higher again as is crude oil, world equity futures are sharply lower and flight to quality sovereign debt trades abound. Interestingly one of the main barometers of risk appetite, the carry trade in the form of the EUR/YEN cross has also fallen and continues under pressure.
Bernanke testifies before Congress today in his semi-annual presentation on the state of the economy. This will be a challenging session for the Fed Chairman and we can expect the credit crisis and the disposition of the GSE’s to take center stage.
On a broader level, the markets’ perception that the “cat is now out of the bag” regarding the Treasury and the Fed’s ability to halt at outright collapse of the US financial system may not be that far off the mark. The seeds of major problems have been sown over years and years of promiscuous lending and will not be relieved by band aids applied at the official level. Perhaps it is time to re-think our current approach to modern monetarist economics as it currently exists. At the core, what governments attempt to do through economic policy is to manipulate human behavior. When a model is created that can accurately accomplish that feat, someone will make a lot of money!
Looking at the screens this morning and reading in reading the news wires, it is abundantly clear that markets are losing confidence in US officials ability to control the current financial crisis.
The dollar is under siege everywhere on the foreign exchanges, gold is higher again as is crude oil, world equity futures are sharply lower and flight to quality sovereign debt trades abound. Interestingly one of the main barometers of risk appetite, the carry trade in the form of the EUR/YEN cross has also fallen and continues under pressure.
Bernanke testifies before Congress today in his semi-annual presentation on the state of the economy. This will be a challenging session for the Fed Chairman and we can expect the credit crisis and the disposition of the GSE’s to take center stage.
On a broader level, the markets’ perception that the “cat is now out of the bag” regarding the Treasury and the Fed’s ability to halt at outright collapse of the US financial system may not be that far off the mark. The seeds of major problems have been sown over years and years of promiscuous lending and will not be relieved by band aids applied at the official level. Perhaps it is time to re-think our current approach to modern monetarist economics as it currently exists. At the core, what governments attempt to do through economic policy is to manipulate human behavior. When a model is created that can accurately accomplish that feat, someone will make a lot of money!
