The Face-Slap Theory - New York Times
I've been enjoying Krugman's ongoing comparison of FED actions really being ways to face slap the business marketplace. I think too often people think that the FED is this holy body of policy makers when in reality they control interest rates by control the amount of money they loan banks in the short term, like over night or for about a month. This in turn allows the bond markets create the actual rate. Sure, things like HELOC's and credit cards a based on the FED's prime rate, but that happens because the bond market allow it.
What's concerning when reading a column from a very well respected economist like Krugman is that he is legitimately concerned that the face slaps might not work. Rescission is one thing, maybe a healthy side of a long growing economy, but depression, that might be another story. Interesting times are these in the financial world.
