NO EASY FIXES FOR BERNANKE
By JOHN CRUDELE
March 18, 2008 -- CHAOS and confusion!
That's the only way you can describe what the Federal Reserve faces as it meets today to discuss interest rates.
There's no doubt that Fed chief Ben Bernanke will again try to lower borrowing costs in light of the virtual collapse of Bear Stearns over the weekend and rumors yesterday of a similar fate for several other Wall Street firms, including Lehman Brothers and MF Global.
But there is also very serious doubt that this next rate cut will be any more effective in propelling the economy forward than the five others since last summer.
One Wall Street veteran put the problem, or rather problems, succinctly in perspective: "There really is no solution from the Fed. It's all about time. There's really no quick fix," he said.
Time may heal all wounds, but right now the Fed and the Treasury Department are just trying to stop the bleeding.
The Central Bank can't just do nothing, although all its usual potions have proven ineffective to this point.
Cuts in the few interest rates that the Fed controls haven't spurred people or companies to borrow, or petrified banks to lend.
And precedent-setting interventions in the markets, like the Fed's active role in JPMorgan Chase's purchase of Bear Stearns, have only made the financial world wonder why Washington is so jittery.
So the Fed has had to resort to the unconventional, like throwing huge amounts of monetary support into the teetering financial system.
And perhaps even propping up the stock market - again.
Stock prices were down sharply yesterday morning, which wasn't surprising, considering that markets around the world had already sold off.
But then suddenly, with President Bush publicly talking about his meeting with the Treasury's Plunge Protection Team (PPT), stocks rallied nicely and even closed with a little gain for the day.
That's one thing off the mind of the Fed, which has scheduled its rate announcement at about 2:15 p.m.
But there are bigger issues involved.
Each time the PPT - formally known as The President's Working Group on Financial Markets - makes a move to intervene in a financial crisis, it places the government at odds with the free market system treasured in this country.
This wouldn't be the only new ground broken by the Fed in recent weeks.
The Central Bank has essentially underwritten the financial errors in judgement made at Bear and a host of other banks and brokerages while placing the US government right smack in the middle of perhaps the greatest money mess since 1929.
The trouble is that this aggressive Fed action has stoked increased speculation in commodities like oil and Treasury securities.
Wall Street calls the current scenario "stagflation" and if you didn't live through the last time it happened in the 1970s, you are in for a really big treat - oh, make that threat.
Last Sept. 18, when this column was headlined Why an interest-rate cut is the last thing we need, you only had to pay $1.38 for one euro, the European currency.
Today, the dollar's value has depreciated tremendously and you'd have to give up $1.57 for a euro. For eign investors are starting to fear dol lar-denominated investments, like I feared would happen in that September col umn. And that has changed the dynamics of rate cuts. By the way, back in Feb. 2007, when Bernanke took over the Fed, you only had to pay $1.21 for a euro.