The Fed Goes Retail and Wants To Finance You
From the Horse’s Mouth
Release Date: December 16, 2008
For immediate release
The Federal Open Market Committee decided today to establish a target range for the federal funds rate of 0 to 1/4 percent.
Since the Committee’s last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined. Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further.
Meanwhile, inflationary pressures have diminished appreciably. In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate further in coming quarters.
The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. In particular, the Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.
The focus of the Committee’s policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve’s balance sheet at a high level. As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant. The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities. Early next year, the Federal Reserve will also implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Christine M. Cumming; Elizabeth A. Duke; Richard W. Fisher; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh.
In a related action, the Board of Governors unanimously approved a 75-basis-point decrease in the discount rate to 1/2 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York, Cleveland, Richmond, Atlanta, Minneapolis, and San Francisco. The Board also established interest rates on required and excess reserve balances of 1/4 percent.
The Federal Reserve will employ all available tools to promote theresumption of sustainable economic growth and to preserve price
stability. — Ben ‘Mad Dog’ Bernanke
This statement cracks me up. It’s like proclaiming your unshakeable
commitment to ‘preserving personal sobriety,’ as you and your friends
polish off a second bottle of vodka. It’s like taking a sex tour of
Asia to promote chastity.
So let’s all hold hands and repeat the pledge: ‘I, too, believe in the strong dollar.’
Speaking of the mythical ‘strong dollar,’ the dollar index bottomed
around 73 last summer, and peaked just north of 89 this fall. The
halfway point would be a little over 81. But the dollar index has
fallen through it, to under 80. Next target: 73.
As Art Cashin observed this morning — ‘you don’t want a credit crisis
to morph into a currency crisis.’ Well, you and I and Art don’t. But
Mad Dog Ben, being a professional academic ‘economist,’ takes the
dollar’s external value to be an exogenous variable. Or to put it in
plain English, the dollar’s coming collapse will be a total surprise to
Ben-Baby. Who would have thought that slashing rates to zero, and
promising to balloon the Fed’s balance sheet with mountains of hinky
paper, would undermine the dollar? None of the experts foresaw this! As
Goofball Greenspan might say, ‘You can’t diagnose a currency crisis
until after the fact.’
If I were joining the Obama administration as Secretary of Education, I
would mandate that ‘PhD Econ’ diplomas be rolled into the shape of a
cone, and placed on the graduates’ heads like dunce caps. Then, whilst
playing beguiling nursery rhymes on my magic flute, I would merrily
lead them to the refreshments table, to consume some delicious ZIRP
Kool-Aid. ‘This Kool-Aid is free,’ I’d announce. ‘Because we have a
tool called the printing press … ah ha ha ha … AH HA HA HA … ALL FALL DOWN!!!’
In order to save money, why don’t we just eliminate the executive branch, congress and all government agencies and simply have the private Federal Reserve banks run everything?
This would save tons of money in bribes, extortion and blackmail while enhancing efficiency. They run everything anyways, the government has been an illusion that is no longer needed.