The Fed Can’t Do It Alone OR Can It?

Fed Chairman Bernanke
It seems that there’s often been a lot of news about the Fed reducing the Fed Funds rate, the discount rate, intervening in the markets, etc. But one economist says, “The Fed can’t do it alone.”

But give the Fed credit. They’re trying to hold up the canvas (otherwise known as the sky) while everything literally falls around them. Home prices down. Stocks down. Dollar down. Confidence down.

Sounds to me like we’re in a — GASP!!! — depression.

Now, depressions aren’t inherently the end-all. But make no mistake, they’re bad. But just as forest fires kill hundreds of years of growth and little furry animals, it paves the way for new, essential growth, ridding the forest of old, dead and dying growth in return for new growth with a chance for thousands of more years of life.

So too is how depressions work. They rid the economy of the junk that’s built up over time, like subprime loans, “securitizations” of junky mortgage instruments, and idiotic leaders of failed companies. The collateral damage, unfortunately, is lost jobs, lost wages, greater debt, and an apprehension to get back into any market that’s riskier than savings accounts.

But the Fed, I think, is doing some heavy lifting right now. It just seems like maybe they’re lifting the wrong things. They need to work in concert with the US Treasury to bolster the dollar, keep inflation in check, maybe cut a deal with the Saudis and OPEC to increase production, at least for the short-term.

Links
Alan S. Blinder – The Fed Can’t Do It Alone – washingtonpost.com
Calculated Risk
Bloomberg
Krugman: Liquidity Trap?

billspaced

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