07-15-2017, 03:01 PM
(07-14-2017, 01:23 PM)Mikebert Wrote: 3. The Fed WILL intervene. But the effectiveness of such intervention has been declining. After the stock market bubble burst in 2000, Fed action converted what should have been a fairly strong recession into a mild one by stoking a "counter bubble" in real estate. But this led o a real estate bubble which after it popped, led to a much stronger recession. The Fed again acted but interest rate reductions were unable to reduce the recession strength. Instead there was financial panic and a seemingly permanent reset to a weaker growth mode. THe Fed followed with massive money creation during the expansion that worked only weakly. Next time the Fed policies will be even less effective.
I agree that the Fed's interventions are becoming less effective in stimulating economic activity; however, they remain effective in propping up asset markets, namely, the stock market. It seems clear that the Fed's main task is keeping asset markets elevated. I would assert that well before the market corrects 55%, the Fed will massively intervene into asset markets, which likely will keep stock market losses well below 55%. It won't necessarily help the economy recover quickly, but the Fed can't do much about that anyway.