According to the Financial Times, “The [Federal Reserves’] open market committee said that ‘inflation is likely to remain subdued” as the economy continued to be weak, and that it is “prepared to provide additional support’ in the form of buying Treasuries to provide cash to lenders if needed.”
This is done by increased purchases of treasury notes, thus flooding the financial institutions with funds.
The primary result is the lowering of the value of the dollar versus other currencies. (Just the mention of such a possibility weakened the dollar late Wednesday against the Euro and Yen.) Since demand for borrowings is low due to adverse economic conditions and economic uncertainties, the additional liquidity is unlikely in itself to generate greater investment and resulting jobs.
According to a commentator on NPR, this is a very dangerous card to play, because it suggests a lack of confidence by the nation’s top bankers in the rate of the recovery. NewsLanc adds that it smacks of the disastrous “Beggar thy neighbor policies” of the 1930s.
The Fed may be forced to take such ‘hail Mary’ monetary measures because of the stalemate in Congress over any administration proposed additional fiscal stimulus policy.
Its “hole card” not “hold card”.
“The Fed may be forced to take such ’hail Mary’ monetary measures because of the stalemate in Congress over any administration proposed additional fiscal stimulus policy”.
I think your comment is correct since the Fed has been doing everything else it can to encourage economic activity. They have kept interest rates low but without product demand in a greatly weakened consumer economy not many businesses can take advantage of the opportunity to increase either their capacity or inventories. There is no American consumer market at the moment. The Fed is hoping for the foreign market to buy cheap[er American goods via devaluation.
Just recently China has devalued the yen (once again) to encourage more of its products continuing in demand. Since all talks with China on this issue have failed, perhaps this is our “shot across the bow” that we intend to retaliate. I agree with your observation that this kind of “beggar your neighbor” retaliation policy could be disastrous, a la the 1930’s, but what are we to do? Congress is sitting on its hands either unwilling to give the administration a break or afraid to take bold action in fear of the angry, and largely misinformed, electorate. Misinformation is rampant. Since the current economic disaster benefits the Republican Party (with supreme irony!) they may want to keep the pain going until after the Mid-Terms and even until the 2012 Presidential election.
We need new jobs and, perhaps, a TARP program to reduce consumers troubled assets. The puny efforts to try and stem the tide of foreclosures has been a pitiful failure although the TARP program for the financial community has been an outstanding success. The stimulus was also inadequate to pull us out of the recession. Not another dime is possible.
We could get out of this mess if we really wanted to but those in charge believe our pain still has a lot of work to do for their longer term interests. Until they are ready to “play ball” again we will be in a “bankers recovery” with recession for everyone else. The additional, and tragic irony is that millions of the ones in pain are cheering for the continuing and unnecessary recession.