Wednesday, April 16, 2008

How effective is Bernanke?

BizzXceleration takes a detailed look into "Interest Rates, Money and Rates" to get and idea about the effects of Fed actions on the current credit crisis. He looks at the spread between 3Mo Treasuries and paper (3MoSprd) which are still wide but have narrowed to less than 100 bp since the beginning of this year. The spread between Fed Fund rate and 10Yr Treasury (10Yr-FF) widened which could indicate a move towards a more normal yield curve. Most compelling is the inflation adjusted Monetary Base indicator (MBase) which reflects the amount of funds available to run the economy. MBase is down 3% year over year which leads the author to conclude:

No matter what the Fed has done the real money supply has been shrinking
since the start of the credit crisis and nobody has noticed....If the Chinese and the ME ever stop pegging their currencies to ours interest rates will have to take a huge jump to protect the dollar AND keep pulling in the foreign fund flows that are keeping us afloat. Comes 'round, goes 'round indeed.

click to enlarge

source: BizzXceleration: Performance, Value and Profit

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