Re: PKE and WTC disaster

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

It happened today in the bond market in Chicago.  Traders were unusually
less aggressive towward their NY counterparts, instead of maximizing
profits.

There is no doubt that the effect on the market of the terrorist attack
would be outright CB intervention in both exchange rates and equity prices.
The Fed just announce a $50 billion eurodollar swap with the ECB for 30 days
to banks with dollar liquidity.  Countercyclical moves by the Fed will now
be justified in the name of stability and patriotism.  Foreign CBs will fall
in line in the name of stability and sympathy.

The denial phase of the recession ends with responsibility for the slowdown
pinned on terrorist attacks, rather than inept policy.  In the name of war
on terrorism, all manners of government control will be instituted, the
market will not be exempt.  This marks the end of market fundamentalism and
the beginning of war planning in the name of defense of freedom.  Military
Keynesianism is on the move.

Henry C.K. Liu

"Forstater, Mathew" wrote:

> Paul - You have argued here before, I believe, that PK analysis
> concludes that natural disasters can end up stimulating the economy by
> giving rise to various types of emergency expenditures that then will
> have multiplier effects.  I believe you made such an argument with
> regard to California a few years back.  Certainly, the argument has also
> been made in terms of military destruction.  I wonder if you think that
> we may expect a similar effect as a result of the WTC disaster, and if
> you think that these effects may more than compensate for any
> destabilizing effects.
>
> I also wonder whether there might be other relatively stabilizing
> effects as well.  For example, is it possible that such a disaster gives
> rise to sentiments (sense of duty, responsibility) that may curb some
> excessive moves on the part of some market participants?  For example,
> is it possible that a 'big player' might resist a big sell-off in the
> context of this kind of disaster, where they might not under 'normal'
> circumstances of markets turning sour?  Also, would certain kinds of
> 'coordination' be acceptable under these circumstances, where they might
> not usually?  Or would certain appeals, e.g. for calm, have a greater
> chance of being heeded?
>
> Also, will the disaster be blamed for things turning economically sour,
> even if it may have been the case that things were heading that way
> anyway?
>
> Thanks,
>
> Mat