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The Fed continues to throw everything including the proverbial kitchen sink into trying to stabilize world financial system but it occurred to me that perhaps this is just a classic case of Poisson’s Ratio coming into play and the Fed is ultimately helpless to do anything about it.For the uninitiated, Poisson’s ratio is a mathematical model for substratum (material) to describe the “stretching” effect of a force upon a material. A picture is worth a thousand words so if you look at the image below, you get a good idea of what I’m talking about here:

So as the Fed injects money via M-LEC, SIV, TAF, TSLF, Discount Window, Interbank rates, and works with world bankers to come up with new gimmicks is it simply a case of stretching the financial system from x to get y and not really impacting anything for the better?

Yes, the perception of the “problem” changes for the viewer so that instead of a “square” it’s now a “rectangle” but nothing has fundamentally changed with the substructure of what is at issue.

Perhaps the Fed should hire a structural engineer to work out an impulse excitation technique to find the “faults” in the financial system? I’d recommend a torsion mode test to find the “fall off the cliff” (shear modulus) of the financial markets and develop some type of Interference mechanism.

Maybe then we can invest in markets and borrow from banks with confidence!