Wednesday, December 17, 2008

Are we replaying the 1930's?

Yesterday the Fed has announced that it lowered it's target rate in the 0-0.25 range. But the markets did react really that well.

Maybe first you have to keep in mind the effective rate was already in that range. This annoucement was more about signaling that Bernanke means business, which is not that surprising considering what the man wrote about Roosevelt's.

Roosevelt's specific actions were, I think, less important than his willingness to be aggressive and to experiment -- in short, to do whatever was necessary to get the country moving again.

But seeing how the markets reacted there are some doubts on the effect of the quantitative easing... Maybe that's because one of the big problem right now, like during the great depression is uncertainty.

Why would you invest in he future when you don't know the rules of the game, and when the gouvernement and the fed are shooting loud and clear that they would do anything?

Would not doing anything be better? It's been pointed out that during the great depression the USA had really active president, and Canada really passive. And guess what Canada would have done better!

I don't think anybody know what will happen, but I think we will learn a lot in the next years.

PS: even if the problem are worse than in the 30's it won't be worse except if protectionnism go back on the table.

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