wall street rejoices . 50 bps , thank you santa klaus, this is response from the street . we are richer , valuations are fine ,goldman sachs reports stronger than expected results and equities are rated a strong buy .
the suspicion may rise on the real role of the federal reserve , to steer the dynamics of economic growth and recession , ie to avoid a boom or bust economic cycle or to launch pre-emptive attacks on suspect developments paving the way to the most exuberant market players who few weeks before were reporting huge losses on their quantic funds ?
clearly it is difficult to argue that mr bernanke , a harvard professor , in concert with the former goldman sachs chairman mr paulson from the us treasury ,came to the rescue of genius hedge funds traders, probably their former students and business partners, positionned for the best case scenario in their trading strategies to get out of the doldrums . nonetheless the recent move speaks loudly about the delicate position in which the federal reserve finds itself, practically a hostage to wall street, betting that higher equity valuations coupled with an infusion of world economic growth will curtail a negative spill over of the us economy .
Not surprisingly the dollar has dropped heavily and the bet of Mr Bernanke is more open than ever . The question remains on the real role of the Fed , that of boosting the economy or to keep it going at a reasonable pace. Is the Fed indipendent or submitted to real pressure that eventually influences its own judgement on the state of the economic affairs? Similarly is the claim of economists to take decisions on scientific grounds still valid given the dynamics and the context of this last decision?
The motto never fight the fed is more true than ever but something else should be added , never fight wall street and its capacity of moving the levers of public power . Small investors should be awed by large and powerful firms and should wake up from the illusion of an independent Fed responsible for granting stability in the markets regardless of the power configuration . The first palpable sign of such an argument is the very weakness of the dollar and the exorbitant profits of the likes of Goldman Sachs positioned before hand in the fastest growing markets outside the US. The real losers, for the time being, are the American people.
Furthermore the current strike of general motor is another sign of unease and insecurity reigning in America. The working class is disappearing, hail China and the Investment bankers who are drawing profits from it.
Who said that a weak currency is good for the economy ? Those Europeans incapable of executing structural reforms . The onus before the euro adoption was high interest rates for small players without credit lines abroad.
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