Friday, August 17, 2007

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Open market thread

Comment away on the financial markets' latest gyrations. Some background reading: 1) The Fed's statement announcing a lowering of the discount rate. This came with a FOMC statement that said:

Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward. In these circumstances, although recent data suggest that the economy has continued to expand at a moderate pace, the Federal Open Market Committee judges that the downside risks to growth have increased appreciably. The Committee is monitoring the situation and is prepared to act as needed to mitigate the adverse effects on the economy arising from the disruptions in financial markets.
This has made the Dow Jones very happy.

Sound policy or moral hazard? The New York Times today suggests the former, since there were no fundamental changes (though, to me, this story ain't chopped liver).

Keith Bradsher and Jeremy Peters report that 2007 might create the inverse of what happened in 1997:

In the past, when economic growth has stalled in the rest of the world, the United States has usually been there to pick up the slack. Now that dynamic is reversed.

With stock markets plunging around the world on financial worries clearly marked “made in U.S.A.,” and with growing concerns about a possible American economic slowdown, a booming global economy could help contain the damage and even assist the United States in absorbing the shock of the collapsing housing bubble and a credit squeeze.

“We’re no longer in a world where the United States sneezes and the rest of the world catches a cold,” said Nariman Behravesh, chief economist with Global Insight, an economics research firm in Waltham, Mass. “You’ve got strong growth overseas, and it’s been kind of like a lifeline to the United States from the rest of the world.”

At the same time, Brad Setser observes the paradox of the current liquidity crisis -- despite the fact that it started in the United States, the dollar is still viewed as a safe haven.

Meanwhile, French president Nikolas Sarkozy wants greater G-7 involvement.... which gives me hives for some reason.

UPDATE: The Volokh Conspiracy is on this like white on rice.

posted by Dan on 08.17.07 at 09:55 AM


The lions of Wall Street had the party that created this mess, and now they want us common folks to suffer (and pay for) the hangover.

posted by: save_the_rustbelt on 08.17.07 at 09:55 AM [permalink]

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