fed watch

I think the excesses, to use a little 'green speak'...the 'irrational exuberance' of this era, are going to erode little by little. The interesting situation with the sub-prime housing market, regarding which Greenspan is sounding the recession bell very loudly, is one of these 'eroding moments' when our, the american, standard of living will fall more in line with that of the rest of the world's. Once the dollar devalues, the cycle will be near a close. When i say, 'devalues', I do not mean an asian currency crisis of the 90's type situation. It will be a very orderly move towards the exits, with the dollar just going down in value much as an overpriced stock would or will. After all, the dollar and all currencies trade just like any commodity. Until the dollar is more reasonably priced, then expect more turbulence in the markets as this situation works itself out.

I am curious to see what the fed does with the housing situation. I can't remember a time that has been as interesting to watch the fed's moves as it is today. There is so much going on. So many balls in the air.

I personally believe that the fed will let the sub-prime market shake out happen without a bail out. The housing market must come down to fall more in line with other fundamentals. The fed realizes this, I believe. It can do so, while at the same time, protecting the dollar by increasing interest rates or, a more subtle approach by just leaving interest rates unchanged. I think the fed will inch up rates to test the housing waters. The latest inflationary data will be the justification by which they do so. This will also squeeze out some excesses in the stock market.