Fed Deploys Every Trick in the Book to Avert Another Great Depression

Dec 07, 2008 - 10:31 AM

By: Mike_Whitney

Without any public debate or authorization from Congress, the Federal Reserve has embarked on the most radical financial intervention in history. Fed chairman Ben Bernanke is trying to avert another Great Depression by flooding the financial system with liquidity in an attempt to mitigate the effects of tightening credit and a sharp decline in consumer spending. So far, the Fed has committed over $7 trillion, which is being used to backstop every part of the financial system including money markets, bank deposits, commercial paper (CP) investment banks, insurance companies, and hundreds of billions of structured debt-instruments (MBS, CDOs). America's free market system is now entirely dependent on state resources.

With interest rates at or below 1 percent, Bernanke is "zero bound", which means that he will be unable to stimulate the economy through traditional monetary policy. That leaves the Fed with few choices to slow the debt-deflation which has already carved $7 trillion from US stock indexes and another $6 trillion from home equity. Bernanke will have to use unconventional means to stabilize the system and maintain economic activity in the broader economy.

Last Tuesday, Treasury Secretary Henry Paulson announced that the Fed would buy $600 billion of toxic mortgage-backed securities (MBS) from Fannie Mae and Freddie Mac, in effect, buying up its own debt. This is one of the unconventional strategies that Bernanke outlined in a speech he gave in 2002 on how to avoid deflation. By moving the MBS from Fannie's balance sheet to the Fed's, Bernanke was able down interest rates by a full percentage point overnight, creating a powerful incentive for anyone thinking about buying a home. But Bernanke's plan is not risk free; it increases the Fed's long-term liabilities which, in turn, undermines the dollar. This calls into question the creditworthiness of the US Treasury which is becoming more and more uncertain every day.

http://www.marketoracle.co.uk/Article7654.html

Bull cookies.

Guess nothing left to do now but to act "heroic".

Heckuva job.

In other words, they arent doing what needs to be done.

200 million households $10,000 each. Can you imagine what that would do to stimulate the economy, even if everybody paid off this bad debt that is supposed to be at the root of the problem.

Bank of America got a 25bn bailout but last Friday shut credit off
to Republic Window Co. in Chicago---which is mentioned elsewhere on DU.

I believe that Treasury and Congress are engaging in a class war to
wipe out the working class in America, and allowing the banks and
Wall Street to loot the country.

Why else hand over 8.2 trillion to banks and WS but no help at all to
working Americans and small business?

Congress wants to kill off working class Americans. It goes without
saying that corporations do.

and that is petitioning Congress to start a public works program that will put people back to work and petitioning Congress to raise the minimum wage while they're at it so that people will have money to spend over and above the payments on their debts.

They seem to need to pull every supply side, right wing trick and have it fail miserably before it finally dawns on them what the problem has been all along: exporting good jobs and holding wages down on the jobs that are left.

people need jobs, good paying jobs, and people need credit to buy stuff.

all of their actions to date have been to shore up investors confidence by doing bailouts of financial institutions. The theory being that by doing so, the banks would start lending again, people would buy stuff and other people would produce stuff. Keeping the plates spinning on top of the sticks again. but it hasn't worked that way.