The sun will rise Monday morning on the markets, but how they react will be determined by President Obama, Treasury’s Tim Geithner and the Fed’s Ben Bernanke actions today.
The S&P downgrade to AA+ has taken a direct hit at the heart of the US financial system.
How this troika responds Sunday through early Monday morning will determine if America loses its preeminence place in the world economy or not as well as their place in history.
As witnessed our equity markets have been in a complete free fall for 2 weeks now down 1,400 points in 9 trading days, with wild volatility on Friday that saw the Dow Jones industrial average swing 416 points.
True to form both Geithner and Bernanke have been nowhere to be found.
If they do not come out guns blazing to quote former Treasury chief Hank Paulson with a “Bazooka” in their pocket, like he did in engineering TARP, which saved our financial system in 2008, then the markets will sell off Monday and the economy, which is already on double-dip’s doorstep, will barge right on in.
We’re not talking about ineffective or confusing programs. We are talking about buying plenty of stock market futures and some US Treasuries.
It will need to be done on a grand scale and out in the open.
Before the Asian markets open on Sunday, the world should know that America stands behind its markets with all its might and muscle. At this stage more lip service and hyperbole will do little.
This is a time for shock and awe.
Responsibly the Federal Reserve has already said that for all US Government securities and Government agency securities the risk capital weights remain “unaffected.”
Translation: Uncle Sam will pay all his debts.
The Fed, the Securities and Exchange Commission, Treasury Department or whoever has jurisdiction now under Dodd-Frank should probably issue a 60- or 90-day waiver to money market funds whose charter requires a certain percentage of securities be held in AAA treasury securities so we do not have a Lehman-like disaster with a money-market fund “breaking the buck,” by unloading lots of downgraded paper into an illiquid market.
The sun will rise tomorrow, but today’s actions in Washington will determine what happens by sunset tomorrow.