On Jul 6, 2008, at 4:53 PM, Seth Ackerman wrote:
> I think this misses the key point. The Fed, unlike the ECB, is
> unwilling to countenance a single quarter of negative GDP more
> because of its ideological ramifications than because of the effect
> on the balance sheet. Don't you know that the US and UK solved the
> economic problem in the 80's? Flexible labor markets, competitive
> product markets - voila! Nirvana! The Great Moderation! Goldilocks!
> This is the story that the elites have been telling for 20 years
> and prolonged, visible economic pain now would fuck it up.
I'd agree with this, but I think you're also underestimating the degree to which Wall Street has come to cherish bailouts. The same friend who said that our elite can't accept a single negative GDP print also told me that his trading floor burst out in applause after a Bernanke speech that made it clear that he would save their butts. The moral hazard concern is a little more acute on the other side of the Atlantic - though of course the Brits bailed out Northern Rock a week after Mervyn King's hardass memo.
Doug