Open Thread

For general discussion and debate. Possible talking point: the Federal Reserve cut the fed funds rate by another 50 bps yesterday. That's 1.25 percent in six business days.

What does it mean? Does the Fed know something we don't know? Is the economy doing so poorly that interest rates need to be dropped so quickly? Or have America's leading banks gotten the Fed to bail them out?

Consider this possibility: heads of Citibank, BofA, etc., meet with Bernanke to discuss how they have to cut expenses quickly. They can either lay off LOADS of people, thereby worsening the recession, and forcing deeper interest rate cuts down the road, OR; Bernanke can lower interest rates FAST thereby allowing banks across the country to drop their savings rates FAST thereby dramatically reducing their biggest cost -- interest payments to depositers!

As such, is it possible this almost unprecedented drop in interest rates is more of a defacto bailout for America's banks than an economic stimulant?

Another possible talking point: might the economy do better with a less volatile monetary policy? After all, the Greenspan era was a period of booms and busts largely caused by excessive Fed easing and tightening.

Put another way, the Fed would have its foot so strongly on the gas that eventually a boom would result in stocks, commodities, bonds, or real estate. Once the boom reached bubble proportions, the Fed would slam on the brakes causing a bust. Once the bust started hurting the economy, the Fed would step on the gas again until another boom in assets occurred.

Lather. Rinse. Repeat.

It now seems Bernanke is following this same pattern.

With this in mind, maybe a more conservative monetary policy -- one with less extremes at both ends of the yield curve -- would produce less volatile economies without the booms and busts.

Thoughts?