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Central Banks & Their Erectile Dis-function

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Financial Panic

QUESTION: Marty, you are absolutely a Godsend. Nobody updates during the day of a panic but you. While everyone thinks the increase in the repo and cutting rates would save the market, you play these down as failed attempts. What is your take on this right now?

Your loyal follower for life.



ANSWER: In the midst of this market turmoil, the New York Federal Reserve stepped in midday Thursday and announced a major asset purchase program. It offered $500 billion in three-month Repo operations, $500 billion in one-month Repo operations, and another at least $220 billion in operations with a duration of two weeks or under. This is a joke as was the rate cut. Rates rise in such panics because banks do not want to lend fearing credit risk and borrowers are not interested until the market settles. The rate cut was futile and the proof of the was the expansion of the Repo facility otherwise short-term rates would explode to probably 20%+.

There is nothing the central banks can do and this is becoming more and more obvious to the real money. We are entering a period we could call Central Bank Erectile Dis-function – they cannot keep the markets up & may not want to.