Negative.
We define a panic as a mass, emotion-driven herd movement,catalzyed into motion and exacerbated by IRRATIONAL FEAR or a movement characterized by an IMPROPER RESPONSE TO RATIONAL FEAR.
Since we regard the FED's acute -- albeit rather late-blooming -- FEAR -- as being soundly based, we cannot label the FED's sudden and dramatic rush to monetary accommodation as PANIC. What it in fact constitutes is a very belated recognition of the serious deflationary threat which exists and is worsening, and which it previously found it convenient to ignore.
As the reported one vote short of unanimity on the FOMC for dramatic rate-cutting demonstrates, the camp of the die-hard inflation-phobes at the central bank has TEMPORARILY been reduced to one.
We predicted, some months back, this dramatic reversal in FED policy, and the forthcoming ascendancy of fear at the Central Bank. This forecast was made at a time when the FED was glorying in its steely anti-inflation determination and in its confidence in its own wisdom and its ability to keep the economy on track and contain the sub-prime crisis with fine words, symbolic action, and a stern refusal to produce liquidity. We predicted at the time that market and political pressures would reach a point where they would overwhelm the FED, and crack its anti-inflation resolve. Well, that day is here.
And now? Now we shall watch with fascinated attention to see whether or not the great economist, Milton Friedman, was correct. Now we shall see whether an appropriate monetary policy can halt, or at least strictly limit, a looming deflationary collapse.
