Wisdom Wednesday: Bagehot’s Crisis Compass
One-minute lesson—liquidity support ≠ risk-on rally.
Today’s thought
“In crisis, lend freely at penalty rates.” — Walter Bagehot
Central-bank firehoses aren’t bullish; they’re triage. When the Fed expands discount-window use or launches new facilities, it’s cushioning solvency risk, not blessing the market. Smart money tracks whether liquidity programs are tapering (healing) or ballooning (hidden fracture). Price often rallies on the headline, then stalls as penalty-rate debt smothers fresh risk.
Tiny action – Check the weekly H.4.1 release: if Fed liquidity facilities grow, ask yourself—is this genuine risk-on or covert rescue? Adjust size and duration accordingly.
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