The markets are in full on collapse mode. 3% declines is what 2009 was made of. Even 2011 I don’t recall as being this intense – although time mutes the pain.
But will the Fed arrive to rescue us? While I deeply hope for this outcome, I’m hesitant to count on it. I see several impediments to a Fed rescue.
The first is that Yellen was very intricately involved in the first set of rescues. Yellen is a dove; but she is a dove who believes in econometrics and the ability of a central authority acting under imperfect knowledge to do good in the economy.
The trouble with that perspective is that it so frequently is revealed to be wrong. This is the central point of non-linearities in real dynamic systems, which is fundamental to the work of the Austrian economists.
Where I am afraid we are going to run into trouble is by sanctioning the first round of interventions, Yellen the dove had a buy-in on the outcomes. If she intervenes, it will cast doubt on the first round of Fed actions. Will Yellen be able to do such a thing just to protect the stock market? Or will she tell herself everything is fine, to shore up the belief that she and her peers knew what they were doing in the first round?
My second concern is that, although the market is in a state of anguish, the economy is not clearly following the path yet. A major shift in stock ownership occurred alongside the Great Recession, and so the regular citizen may be more insulated to negative stock performance than five years ago.
It might be just us out here.
Would the Fed intervene to save professionals? How much bearing does this even have on the average blue collar citizen? I am concerned that the severity of the Great Recession means the knockoff shock waves may not justify additional aid.
Of course, on the other side of things, the stock market is still heavily owned by politically connected and economically powerful persons. That has never hurt much in the past. I’d say that’s still a positive, the current and apparent political upheaval against such behavior notwithstanding.