Good for today, uncertain for the future

Implications: It is terrific that one day gains reclaimed much of the territory lost over the various Asian exchanges on Tuesday.  The significance of the instant reaction to the price cut at the Fed's lending window was one of timing.  The question is whether this particular means for economic stimulus will have a long lasting effect.

Analysis: A cut by the Fed of 75 points is extremely significant.  It shows a serious intent to disassemble the mechanisms of recession, and encourage spending and growth.  This happens for two reasons - first that banks have more "inexpensive" raw materials to make loans with, which should lighten the tightening of credit we have seen that.  The second reason is that the economists hold forth that this increase in lending will naturally result in an increase in either investment or spending.

The questions of how this helps in the longer term are more complex.  Tightness of credit and lack of spending are symptoms of a recession not causation.  While the Fed did a very apt job of throwing a wrench in the works and alleviating some of the symptoms (particularly those of a credit crunch brought on in part by concerns about diminshed credit quality), we have to wonder about how long it will be before spending begins to diminish again.  You can't make 75 basis points cuts continuously, and the underlying problems of lack of both consumer and corporate confidence need to be addressed as soon as possible.

I believe this measure bought the Fed, the US, and the Asian markets more time to deal with matters that are the core of the issue.  There are basic reparations that need to be made in the mortgage lending system that will help restore confidence at all levels, both by assuring available credit for investment more naturally, but moreover by helping to stabilize real estate values in the US.  A lot can be gained by studying consumer confidence and its relationship to recession and trying to work on the former to resolve the latter.

One parenthetical comment, is that we should all hope, and frankly it should be the utmost wish for investors on the Indian subcontinent, that the statement by India's Finance Minister Chidambaram, "There is no reason at all to allow the worries of the Western world to overwhelm us," will be ignored or refuted or whatever it takes to make it go away.  Like it or not, the emerging economies are extremely affected by conditions everywhere else.  India in particular must deal in lower growth rates in the event of a Western recession, but moreover the reduction in offshore outsourcing dollars that are building their economy at light speed.  The minister's statement harkens back to a day when an isolationist economic policy was believed to be the only way to control the organization.  It is clear from the currency and investment policies of the country that to some extent they still want to stay independent of the world in terms of monetary policy, but the economy is most certainly a global one, and India needs the worries of the West to be all settled.  As do we all.