Remember when Paulson said he only needed a bazooka?
“If you’ve got a squirt gun in your pocket you may have to take it out. If you’ve got a bazooka, you may not have to take it out. By making it unspecified, it will greatly expand the likelihood it will not have to be used.”
"Latest cut takes key rate as low as it goes; Fed promises to use other methods to get credit moving again" by Robert Gavin, Globe Staff | December 17, 2008
The Federal Reserve, after slashing its key interest rate almost to zero, said yesterday it will now pursue unconventional actions that one economist called the "moral equivalent of printing money" to try to stop a quickening economic slide.
And THERE GOES the DOLLAR!!!!
See: The Ron Paul Platform: Money
The Fed yesterday cut its federal funds rate, which banks charge each other for overnight loans, from 1 percent to a range between zero and 0.25 percent, the lowest on record. In an extraordinary statement, Fed policy makers acknowledged that the use of short-term rate cuts, its preferred tool for boosting the economy, is all but spent, and they will turn to other methods to pump cash and credit into the economy.
Those options include buying securities backed by mortgages and other consumer and business loans, which would free up money for banks to make more loans; and buying long-term Treasury bills, which would lower rates on mortgages and other long-term loans....
"It's the moral equivalent of printing money," said Nariman Behravesh, chief economist at IHS Global Insight in Lexington. "The economy is in free fall, and the Fed will do whatever is necessary."
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"So here we are: rock bottom," said Ian Shepherdson, chief US economist at High Frequency Economics in Valhalla, N.Y., in a note to clients after the Fed announced the rate cut. "This is a terrible, chastening day."
.... Yesterday's rate cut follows a series of aggressive and often unprecedented actions by the Fed to stop the economy's downward spiral....
Normally, lower rates boost the economy by encouraging consumers and businesses to borrow and spend, but credit markets are malfunctioning. Banks, worried about getting paid back, are reluctant to lend, while businesses and consumers, worried about losing customers or jobs, are reluctant to borrow. The result: The impact of lower rates is diminished.
That's why the Fed has to take unconventional steps such as buying Treasury bills and mortgage-backed securities, said Gus Faucher, director of macroeconomics at Moody's Economy.com in West Chester, Pa. "They're pulling out all the stops and trying new things," Faucher said. "The goal is to push cash into the system."
Economists said the Fed is going to need additional help from Congress and President-elect Barack Obama in the form of a spending package of at least $500 billion to further stimulate the economy. That package could include everything from funding for public works to tax cuts to extended unemployment benefits.
"The only light at the end of this tunnel is the Obama stimulus," said Behravesh, of IHS Global Insight. "But is has to be big, bold, and quick."
It saddens me that the blogs have turned out to be right, because Americans have no ide the hell in store for them. I'm not looking forward to it.
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