Posted by: Michael Mandel on February 05
Here’s how to understand what comes next. Think about the credit crisis in terms of core and periphery. The core includes those markets which are at the heart of the crisis: The mortgage markets, and secondarily, consumer credit in general. The periphery are the markets which are being hit by the side-effects.
The Fed has to cut rates deeply enough to stop a full-time unravelling at the core of the crisis. But in doing so, it will pump life into the periphery. So the mortgage and consumer credit markets will be dead for a few years, but corporate credit and the rest of the economy will recover pretty quickly.
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