Asbytec

It's Time for the Fed to Get Serious - Barron's

Happy, suspend short selling? Maybe modify rules that require banks to keep a reserve to back CDS? I say don't suspend, amend, or do anything with the existing rules except rewrite them in their entirety, keeping the tried and true stuff. We need to eliminate any activity that permits banks to engage in insurance activities.

It's Time for the Fed to Get Serious - Barron's

Axel, and I forgot to mention another reason for unprecedented liquidity is the Fed trying to inflate it's way out of a deflationary spiral. That being said, it seems probable they should deflate our way out of the impending inflationary cycle.

All, I would not be to angry if the US government actually federalized the Fed.

Hand, the banking system is in a coma. It will be revived once it shows some signs it can survive.

It's Time for the Fed to Get Serious - Barron's

Axel, like you, I am trying to make sense of this tremendous liquidity creation by the Fed. And I agree, it will not cover the trillions involved. (You say $130tn, I've read smaller figures on the order of $50tn. Still...)

The first thing that comes to mind is, of course, easing is a typical reaction to recession. But, apparently, even at zero percent, the banks aren't lending as they should. They're strapped with CDS payouts and really don;t have money.

The second thing that comes to mind is to flood the banking system with money to east the fear of (what is now more risky) lending. It's like trying to bust a dam by diverting too much water into the reservoir while trying to take some of those toxic debts off their books.

No matter what the case, the Fed is using the tools it has. It might need to be more aggressive, as the author states, but at least it acted first. October last year, Bernanke testified before congress and he told them they need to shore up the GSEs. He also pleaded with lenders to renegotiate loans. No one listened, until the stimulus package, anyway.

But, in fixing this mess, the Fed may be wrong headed in that the problem lies in our banking system in many levels. As you assert, we need to eliminate the Fed. By extension, I gather you also support getting off the fractional banking system all together. Really, so do I. There are other ways to create money other than through consumer debt. And those ways are inline with our constitution, with the government (congress) coining and setting the price of money.

But, I just don't see that happening. If you think the lobby is powerful, wait till you try messing with the folks who run the banking system. What I do see happening is the tight regulation or elimination of legalized gambling and insurance functions that are not and never should be part of any banking system.