Monday, December 03, 2007

Shock and Awe From Larry Kudlow

After a small hiatus of worrying about lagging inflation indicators, my favorite business talk show host has come back around on the need for further and more dramatic rate cuts. He makes some poignant arguments noting credit risk spreads increasing to August crisis levels recently. What took you so long Larry? Excerpts from his blog below..............................

Kudlow 101: More Shock and Awe

I have changed my mind.Until recently, I thought the Fed could stand pat at their December 11th meeting. However, I have completely changed my mind in light of the continuing credit market turbulence.Take a look at the commercial paper market (90-day asset-backed CP minus 90-day T-bill). Think mortgages, credit cards, auto loans, etc:

We’re back to almost 250 basis points. The spreads have widened so much that they’re close to where we were last August. The key here is that short-term money markets are not funding properly. This deterioration is what Mr. Bernanke and Mr. Kohn are looking at. It is of grave concern. It means businesses cannot function properly. And that could mean job losses.

Rest of Blog Post Here