Photo taken on August 1, 2007: Mt. Moran from Oxbow Bend in Grand Teton National Park  - -  Credit: www.jacksonhole.com The Town of Jackson is the county seat of Teton County, State of Wyoming and the only incorporated municipality in the county. Jackson is the name of the town, and "Jackson Hole" as it's often called, refers to the whole area, which is a 50 mile-long valley, surrounded by high mountains. The current population of Jackson is approximately 8,647. Jackson is a popular tourism destination because of its proximity to Yellowstone & Grand Teton National Parks, its unmatched scenic beauty, the world-class skiing, and its western character.

The US Federal Reserve's annual Economic Symposium will open today in Jackson Hole, Wyoming and after weeks of strident calls from Wall Street for a cut in the federal funds rate from its current level of 5.25%, to rescue the financial industry from the hole it got into during a period of easy/cheap money, all eyes will be on Fed Chairman Ben Bernanke who is due to deliver the opening remarks at 10:00 Eastern Standard Time/ 3:00 pm Irish time. While Bernanke is likely to say nothing very specific, analysts and traders will be seeking some signal that their bonuses will be rescued in the closing months of 2007 despite a minority of market watchers who say that the real economy is still solid.

The problem for the markets is that there is still largely opacity as to the exposure of investment banks and hedge funds to the subprime fallout and it is expected that the murky picture will not become clearer until the third quarter earnings season.

 The Jackson Hole Economic Symposium, which brings together central bankers, finance ministers and policy wonks, has been held annually since 1978 and details of its past proceedings/papers can be found here.

European Central Bank President Jean-Claude Trichet has cancelled his visit.

An ECB spokesman said Trichet, who was due to fly to the event today, has withdrawn for 'private reasons'.

Trichet had not been expected to make any public comments as the ECB does not normally make comments within a week of a Governing Council meeting and September's is scheduled for next Thursday, September 6th. The cancellation is likely to prompt speculation that his withdrawal relates to his desire to remain in Frankfurt to monitor events in the financial markets. It may of course simply be that he couldn't be bothered with the hassle!

Last week-end in the New York Times, James Grant, editor of Grant’s Interest Rate Observer and author of Money of the Mind,  wrote that "it has not been lost on our Wall Street titans that the government is the reliable first responder to scenes of financial distress, or that there will always be enough paper dollars to go around to assist the very largest financial institutions. In the aftermath of the failure of Long-Term Capital Management, the genius-directed hedge fund that came a cropper in 1998, the Fed — under Alan Greenspan — delivered three quick reductions in the federal funds rate. Thus fortified, lenders and borrowers, speculators and investors, resumed their manic buying of technology stocks. That bubble burst in March 2000."

An article in the Wall Street Journal on Thursday says that in handling his first financial crisis, Bernanke shows signs of a break with Alan Greenspan, the Fed's Chairman from 1987 to 2006

To Greenspan, market confidence and the economy's growth prospects were so intertwined as to make the Fed's two duties almost inseparable. He cut rates after the 1987 stock-market crash and the near-collapse of hedge fund Long-Term Capital Management in 1998 to prevent investor reluctance to take risks from undermining the nation's economic growth.

By contrast, Bernanke distinguishes between the central bank's two functions. So, on August 17th, the Fed cut the interest rate and lengthened the term on loans to banks from its little-used discount window in hopes banks would use the window -- or at least the knowledge it was available -- to lend to solid borrowers having trouble getting credit amidst the market turmoil. The action was aimed at restoring the normal functioning of disrupted credit markets, not primarily at boosting growth.

John Authers, Investment Editor, writes in the Financial Times today that there are good reasons for a cut. One of the three specific reasons for setting up the Fed, listed in the Federal Reserve Act of 1913, was to “afford means of rediscounting commercial paper” – extending short-term loans.

Banks have acute problems with commercial paper, the short-term debt that underpins many transactions. The amount they have raised this way has fallen $250bn in three weeks.

Authers says that since the New Deal, the Fed has also had to pursue “full employment”. Early indicators suggest that unemployment is rising. Initial US jobless claims have risen five weeks in a row. That also could justify a cut.

The problem for the Fed is that expectations seem to reflect a cocksure certainty that a “Bernanke Put” is in force. A “put” option allows you to sell for a fixed price: the phrase refers to the belief that the Fed will cut to bail out the stock market if share prices fall.

The surge in fed funds futures immediately followed the drop in US financials’ share prices.

Authers says that this is no coincidence. The market assumes that distress for financial institutions guarantees rate cuts in its wake. This implies no downside for taking stupid risks and is toxic for the Fed’s credibility.

James Grant concluded his New York Times article: In any case, to all of us, rich and poor alike, the Fed owes a pledge that it will do what it can and not do what it can’t. High on the list of things that no human agency can, or should, attempt is manipulating prices to achieve a more stable and prosperous economy. Jiggling its interest rate, the Fed can impose the appearance of stability today, but only at the cost of instability tomorrow. By the looks of things, tomorrow is upon us already.

A century ago, on the eve of the Panic of 1907, the president of the National City Bank of New York, James Stillman, prepared for the troubles he saw coming. “If by able and judicious management,” he briefed his staff, “we have money to help our dealers when trust companies have [failed], we will have all the business we want for many years.” The panic came and his bank, today called Citigroup, emerged more profitable than ever.

Last month, Stillman’s corporate descendant, Chuck Prince, chief executive of Citigroup, dismissed fears about an early end to the postmillennial debt frolics. “When the music stops,” he told The Financial Times, “in terms of liquidity, things will get complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.”

What a difference a century makes.