Lowering interest rates would further harm the valuation of the US dollar, and perhaps cause significant problems for the markets in that it is difficult to tell what foreign investment capital would do. Would they worry that they should pull out now, because the Fed (with their own, much better sources of information) thinks the situation is going to get worse (possibly much worse) if the Fed doesn’t act?
Second, as I stated in the above post, the problems here are structural. They’re directly the fault of the whiz kids who put together these “financially engineered” debt instruments. This isn’t a case of a market becoming liquidity-locked, as we saw in ‘29 and ‘07. There is liquidity out there — it just doesn’t want to come out and play any more until more people get a read on what the market is going to do with all the debt already foisted on the market by these “whiz kids.” Further, the liquidity is ready to go to work — for a price.
And that price is “higher than previously” — ie, what we’re seeing now is risk spreads widening to something more historically normal. The whiz kids in the private equity and hedge funds have become addicted to cheap liquidity to chase every stupid idea in the universe.
Now the whiz kids are going to have to pay up for liquidity and they don’t like that.
Never forget that Cramer is ultimately a hedge fund yahoo. He always has been. I view everything the guy says through the question of “qui bono?” and answering “The hedge funds.”
The problem there is that other central banks are battling high oil prices with interest rates. We need to have coordinated monetary and currency actions, as has been done in the past. Of course, if Bernanke lowers rates as he should, the other countries will be begging for coordinated policy.