Sunday, August 12, 2007
Bernanke versus Cramer
BusinessWeek has a good overview on how Bernanke is managing the money supply: tightening (but not tight) monetary policy to carefully control inflation. The recent OMC injection looks set to maintain existing target rates, which is a lot different than what folks caught in bad investment strategies, esp. around fixed income or housing, may want to see. This is in many ways contrary to what has been the dominant fed policy, esp. through the Greenspan years. Is this the right policy now? Well, we'll know soon enough. One of the key problems with managing the money supply to actively manage business cycles is this: different industries experience different conditions; a one size policy only makes sense under relatively uniform conditions. Mortgages and housing are awful right now, but the fallout hasn't generalized in a way one might have expected. It seems to me that the fed is being prudent at the moment. In fact, cutting rates could up long term inflation, which would drive housing problems into a worsening state.