Tuesday, May 06, 2008

Hair of the dog

It is not too far fetched to say that America is a high risk debtor. Long before the sheriff comes to evict a man who has habitually borrowed more than he can pay and squandered it on luxuries, his borrowing habits show a pattern. It is essentially the pattern of addiction. Among people addicted to alcohol, the expression hair off the dog that bit you is a junk rationalization that has turned into an accepted bad practice: having a drink in order to dull the pain of a hang over. That practice looks like the only line our nation's money mavens can recite.

Here is an article from Asia Times that is quite clear about the world's disdain for Fed policy. I don't think highly of it myself.
We have been a vocal critic of interest rate cuts in the US because, in our assessment, they do much more harm than good: subprime borrowers or holders of illiquid debt instruments are shunned from the markets in the current environment because of general risk aversion, not because of the level of interest rates. Lower interest rates, however, may cause inflationary pressures to build further and may cause further downward pressure on the dollar.

I don't have that informed an opinion but if the current mess in bank liquidity is largely the blowback of Greenspan's shortsighted means of putting off the credit drought caused by a trillion dollar republican borrowing spree, how on earth is enabling yet more dubious borrowing a solution? I suspect the certainty of inflation has been accepted as a collateral damage if it comes. The current administration can blame inflation on oil prices and, in any case, it will fall more heavily on the next administration. That overdue and oft forestalled recession would hit soon if not expensively repelled and dent McCains Same Talk express.

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