[tcostell]

You’re still talking about a monetary policy issue, while I’m talking about a markets issue. It’s apples and oranges. We cannot address the long term problem that you have identified while the short term problem that I’ve identified continues to make the long term problem worse. But if we were to implement my solution we would prevent the next “emergency” where the Fed would be forced to forget it’s long term goals... again. It would then free them up to address the long term monetary policty issue.

[palmer]

Your solution would in no way prevent any emergency. The current debt contraction emergency was brought about by excessive credit lowering the spreads of upper truanches of junk debt to a couple of basis points over treasuries. That is credit market insanity and it doesn't matter how much information people have or share about the end of the asset bubble. If anything, your proposal would make the race for the exits even more extreme triggered by a broader market excess rather than a few focused areas.

Here's a simple example: I am offered zero downpayment, zero interest, deferred principle financing on whatever I want. As long as I am early to the party I am fine. With your proposal I would be notified in advance when the party is going to end. That means I am also informed that the party has started so I can jump on it even earlier. I am also more likely to make the decision to go for it because I have less uncertainty about when to cash in. In short, the bubbles would be steeper and the crashes would be much faster and thus take down more unrelated markets.