[Ranger]

Rather than messing with the Fed Funds Rate, what would happen if the Fed purchased long-bonds (government and otherwise) on the open market, driving down long-term rates while leaving short-term rates intact and pushing cash into the economy in this manner?

[Nick Danger]

what would happen if the Fed purchased long-bonds (government and otherwise) on the open market... pushing cash into the economy in this manner?

Probably not as much as leaving cash in the economy by passing tax cuts. The problem with doing it via monetary policy is that it's pushing on a string. You can put the cash in the banks, but you can't make people borrow it. Companies are not going to borrow to put up new PP&E until they see some evidence that sales are rising. Even a low interest rate is still a new expense item, and that scares people right now.

[Orangedog]

Rather than messing with the Fed Funds Rate, what would happen if the Fed purchased long-bonds (government and otherwise) on the open market, driving down long-term rates while leaving short-term rates intact and pushing cash into the economy in this manner?

I'm pretty sure that they are already doing that, at least on the government side, in what is euphamistically called the "Greenspan Put." They may or may not be doing this in the private dent markets as well. There are even rumors that the Fed might be buying S&P and/or futures on Dow componants via offshore accounts, which might explain the sudden buying action that the market has seen following any decline in stock market indecies, even on news that the market typically sees as negative. Treasury (under Rubin) did this in the currency markets in the 90's to sandbag traders that were shorting the dollar. They (Treasury) are legally allowed to intervine in the currency market via the Exchange Stabilization Fund. Hard telling what is going on behind the scenes.