New Fed Policy Option

Manchau has a Post which I believe is essentially correct. The Fed will again drop 50 base points on the Fed funds rate, and could even equalize the Discount rate. I do believe that the next financial crisis is pre-programmed. The Stimulus package will not stimulate, due to Inventory drag and the excessive debt of current Consumers. The President could help in his State of the Union Message, if he would actually forbid Government agencies from spending the earmarks, whether they are Congressional Report terminology or legislation; he is in the perfect position to do so, with the Democrats shooting themselves in the foot, alongside his own inability to get reelected. It would not matter if the Courts later overturned his Ruling, as the earmarks still would not get spent in the remainder of his Presidency.

Another potential Gain for both Stimulus and Fed policy viability would be the passage of a Rule by the Fed stating that both the Fed funds rate and the Discount rate would increase automatically by 10 base points every month that the rates were below 5%. This would trigger immediate Stimulus, because Investors would understand that Investment must be immediate to retain favorable funding rates; reliance on Fed Open Market meetings could be very risky. Most would ask why I would set the automatic mechanism at 500 base points when I believe 425 base points is the proper setting, the higher Signature setting would maintain the power of the Fed to operate significantly within the financial markets; the Fed retaining a real Whip. lgl