Should you be fearful of deleveraging?

Should you be fearful of deleveraging? Fearful, be very fearful. Big bulk of it is in interest rate swap which is less problematic but FX, commodity,credit default, etc that adds up to hundred of trillions US $ will damage the worldwide financial systems when participants lose confidence.


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Don't fight the Fed. Yes, that's exactly right. When the Fed started to drop interest rate in Summer 2007, there is a reason for it even though most says they are behind the curve.

Sept. 18(2007) (Bloomberg) -- The Federal Reserve lowered its benchmark interest rate by a half point to 4.75 percent, the first cut in four years, to protect the U.S. from sinking into a recession sparked by fallout from the housing-market collapse.

``Today's action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets,'' the Federal Open Market Committee said in a statement after meeting today in Washington. The central bank will ``act as needed to foster price stability and sustainable economic growth.''

Stocks surged, two-year Treasury notes rose and the dollar fell to a record low against the euro. The larger-than-forecast reduction suggests Chairman Ben S. Bernanke is prepared to leave himself open to criticism that he's rescuing investors from bad decisions for the sake of saving the six-year expansion.

``You forget about everything else, and you have to make sure the worst-case doesn't happen,'' said Stephen Cecchetti, a former New York Fed research director who is now a professor at Brandeis University in Waltham, Massachusetts. ``This is very forward-looking.''

When they cut the interest rate for the first time, that was the signal of very bad things to come but Dow Jones Industrial Average closed 13,739 that day. It went on marching to break 14,000. And DJIA down 33% from that first cut. Unbelievable, at hind-sight.

When the worldwide central bankers cut rates concurrently - the markets shivered because it is a signal of very bad things could come. When they went offensively, worldwide tickers jumped very aggressively and losses steam so fast after 2 days of rebound. When they keep buying up banks, pumped billions of dollars into the market, these are very bad signs. I think they saw what is coming but just trying to make deleveraging process more orderly.