Oh yes – for those who think the Fed will not be cutting rates, or that this will just introduce moral hazard because the so-called ‘Greenspan put’ will merely morph
into the ‘Bernanke put’, should also have read of Chapter 9 of ‘Manias, Panics
and Crashes” (“The Lender of Last Resort”).
The problem is that the Fed can’t drop rates. Review what happened during the ’70s. We are in deficit spending already, who is going to pick up the treasuries with decreased yields? Foreigners? They are already running from the currency.
To say that the fed can only make adjustments by raising or decreasing treasury rates is incorrect. It can also adjust money supply (M0). This may be the path the fed will take this time because treasury rate reduction is not possible (unless deficit spending is curbed – highly unlikely with a possible recession around the corner).
