Thursday, September 25, 2008


The compression thesis promulgated here is happening. Rates across the G20 must drop close to zero to avoid calamatous financial asset price destruction. Daisy chains all over the world are unraveling and the speed of this is well beyond the reactive capabilities of most governments.

It is a good thing then, that the U.S. is being proactive. Intercepting as yet unforseen problems will appear very wise in hindsight. The criticism against Mr. Paulson is misplaced.

Bernanke will do anything to avoid the stagnation Japan experienced in the 90s. His formative academic training was in avoiding just this kind of outcome.

Given that his political masters in Washington have no direction, he will be forced to cut rates to avoid a deflationary asset price spiral.

The clamour over the 700bln "bailout" is misguided. The Treasury is swapping bills for mortgage securities, and is not "deficit spending" that constitutes a "bailout".

I have already trammeled on the Euro-area ad nauseum, so I will refrain from stating the obvious there.

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