The Fed's Toolbox

For the first time since cutting interest rates to 0.25 percent, Federal Reserve Chairman Ben Bernanke outlined his plan of action. In a speech at the London School of Economics, Bernanke talked about the additional tools available to the Fed, an orderly exit strategy, concerns about inflation and suggestions about how the Obama Administration should use the remainder of the TARP funds.

Most importantly, Bernanke created a new name for his regime – credit easing. In contrast to Quantitative Easing, which Bernanke explains focuses on the liabilities portion of the central bank’s balance sheet, Credit Easing focuses on expanding the asset side of the balance sheet. However since the balance sheet is suppose to balance, this may just be a difference of semantics since both efforts ultimately add liquidity into the financial system. The Federal Reserve wants to draw a distinction between their current policies and the Bank of Japan’s policies between 2001 and 2006.

The Fed’s Toolbox

As for the tools that they have at their disposal, there was nothing groundbreaking. Their number one tool is policy communication, followed by liquidity facilities for banks, facilities for other markets and purchases of long term securities. Like Federal Reserve President Lockhart, Bernanke expects interest rates to remain low for an extended period of time.

Inflation Concerns and Exit Strategy

As we expected, inflation is not a concern because the Fed believes that weaker growth will keep inflation low. In terms of an exit strategy, he expects demand for the emergency facilities to wane as the US economy improves.

Use of TARP Funds

Like many members of the Bush Administration, Bernanke supports using the rest of the TARP funds on the credit markets. Without stabilization in the financial system, he does not believe that any fiscal stimulus will have a lasting impact on the economy.

Comments

[Smarty_Pants:]

"The FED has only two tools: inflation and blarney." - Franklin Sanders


"Their number one tool is policy communication" = BLARNEY

"followed by liquidity facilities for banks, facilities for other markets and purchases of long term securities" = INFLATION


Doesn't seem so elegant when Mr. Sanders summarizes, does it?


Even one of the greatest opponents of capitalism in history knew that what the FED is doing to our country wasn't good for us:

"The best way to destroy the capitalist system is to debase the currency."
--Nikolai Lenin

Jan 14 11:10 AM

[Smarty_Pants:]

But why stop with the guy who founded communism? Even the guy whose theory we are implementing knew the truth:

"There is no subtler, or surer means of overturning the existing basis of society than to debase the currency. The process engages all the hidden forces of economic law on the side of destruction."
--John Maynard Keynes

Jan 14 11:51 AM

[Socialism c...:]

* "I sincerely believe ... that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity under the name of funding is but swindling futurity on a large scale." – Thomas Jefferson

* "Of all the contrivances for cheating the laboring classes of mankind, none has been more effective than that which deludes them with paper money." – Daniel Webster

* "Whoever controls the volume of money in any country is absolute master of all industry and commerce." – James A. Garfield

* "All the perplexities, confusion and distresses in America arise not from defects in the constitution or confederation, nor from want of honor or virtue, as much from downright ignorance of the nature of coin, credit, and circulation." – John Adams

Jan 14 02:59 PM