The Flinchum File
Thoughtful Economic Analysis and Existential Opinions

Old Habits Die Hard

03/03/2020

The Pentagon has often been accused, unfairly,  of always preparing to fight the last war.  During the initial build-up in Vietnam, they sent two Armor battalions, one into the Mekong Delta and the other into the highlands.  Unfortunately, tanks don’t do well in swampy jungles nor with long supply lines without roads.  Right objective, wrong tools!  Old habits die hard.

The current objective on Wall Street is to stop the bears from running over us.  The conventional thinking that the Fed will bail out Wall Street whenever it suffers, often called the “Fed-put.”  When scared, run to the Fed first and the government second.  Another old habit gone wrong!

Under intense pressure from the President, the Fed answered the call and dropped 50 basis point today.  That’s two fewer arrows in the Fed’s quiver for fighting real economic problems.  It looks like the Fed cares more about Wall Street than Main Street.  Importantly, it also does nothing to stem the real problem of coronavirus, which doesn’t really care about interest rates.  You can’t fight a biological problem with monetary policy.

If you thought Monday’s 1,294 point jump in the Dow was impressive, imagine the jump if both a treatment and a vaccine were discovered for the coronavirus . . .

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