Our Awful Situation

Bad times get worse for Ben

Posted by Charlie Kilo on June 9th, 2008

Last month, I noted the apparent change in the Federal Reserve’s policy emphasis from their last meeting on April 30 (Self-Inflicted US Misery Asia Times Online, May 28, 2008). Finally, the Fed had become cognizant of the growing world inflation threat, a threat seemingly exacerbated and intensified by the Federal Reserve’s rapid fire “shock therapy” policy of cutting interest rates, which was initiated in response to the subprime/structured finance crisis that hit the markets late last summer. From September to April, the Federal Reserve’s benchmark Federal Funds Target rate was repeatedly and rapidly slashed, from 5.25% to 2%. Eschewing the slow and steady policy of his predecessor Alan Greenspan, who cut 25 basis points at a time, Bernanke cut fast and hard, twice, on January 22 and March 18, reducing the rate a full 75 basis points at a time.

Did it work, did it save the US and the world economy from the howling chasm of the subprime/structured finance crisis? For a while, or, at least until Friday, the application by the Fed of electric defibrillation paddles to the markets seemed to have had its proper effect, helped by the Fed’s switch of role in mid-March to be the preacher at the shotgun wedding of brokerage houses Bear Stearns and JP Morgan…

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Our Awful Situation

Bad times get worse for Ben

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