Fed under pressure to do more on credit crunch

The Financial Times ^ | 10/5/2008 | James Politi and Krishna Guha in Washington

[jwparkerjr]

The only way the situation is going to improve is if something is done that helps the producers of the nation, period. We have come to the point in the financial world where the vast majority of people are living on, and manipulating, money that exists only in their minds and on paper. Pumping in billions and billions of money borrowed from our grandchildren won't do anything but make inflation worse and drive down the value of the dollar around the world.

If you want to boost the economy do things that help the people who actually produce something.

No one knows what to do because they are living in a make-believe world, built on promises of people to pay with something they don't have, and probably won't have when the piper comes calling.

It's a huge bubble, and it exists only by virtue of its ability to expand. It has reached it limit for expansion. Anything further attempts to coax growth out of it will bring the unavoidable bursting of the bubble.

Our entire financial system has spent the last half-century buying and selling, packaging and repackaging, and otherwise manipulating something that simply doesn't exist. Our economy has grown by one or two or three percent per quarter during the ‘good times’. But our financial world has been expanding by ten percent or higher, good times or bad.

One guy digs a fifty-foot ditch and is paid $50.00 In no time at all he, and those along the food chain, have leveraged that ditch into a $1,000 package of ‘securities’. There simply is nothing of value represented by the extra $950 that everyone one is spending.

Tough times are coming. And nothing they are doing with this big ‘bailout’ will do nothing to help. In fact, it's only digging a deeper hole.

[fightinJAG]

Fed Sets Floor Below Rate Target, Engineering `Stealth’ Cut

Oct. 7 (Bloomberg) — The Federal Reserve may have trimmed borrowing costs yesterday without actually saying so.

The central bank used power granted under last week’s financial-rescue legislation to effectively set a floor under its main interest rate that’s lower than the 2 percent target set by policy makers last month. The Fed may now pay interest on bank reserves while it floods financial markets with liquidity, pushing down the overnight lending rate by about 0.75 percentage point to 1.25 percent.

``Absolutely, it’s a stealth easing,’’ said John Ryding, founder and chief economist of RDQ Economics LLC in New York and a former Fed researcher.

The announcement, and a Fed decision to double the auction of cash to banks to as much as $900 billion, failed to avert a 3.9 percent decline yesterday in the Standard & Poor’s 500 Index. The index has tumbled 28 percent this year even as the central bank has expanded credit more than at any time in seven decades, including a 3.25 percentage-point cut in the main rate during the past 13 months.

``The problem is it’s an easing that’s trying to offset a massive tightening in the market. Net-net, are we easier in policy? In some sense the answer is no,’’ Ryding said.

By paying interest on reserves, the Fed can pump more cash into the financial system without worrying the overnight lending rate will drop to zero at the end of each day as banks withdraw excess reserves. The move doesn’t preclude a further reduction in the target rate by the Federal Open Market Committee.

. . . excerpted from . . .

http://www.bloomberg.com/apps/news?pid=20601068&sid=a2KRwOfPJk58&refer=home

[Designer]

"..while it floods financial markets with liquidity,"

Do we start screaming now?

Where is the voice of reason in all this?

Oh, right, we cancelled his speaking engagement.

Never mind.

"Let's fire up the printing presses, folks." "All discretionary leave is cancelled henceforth." "Now get to work!"