Ahead of Federal Reserve policy statement: Bernanke wants agressive moves

Posted Mar 17th 2009 4:30PM by Connie Madon
Filed under: Federal Reserve, Financial Crisis

The Federal Reserve has began its two-day policy meeting today. Chairman Ben Bernanke wants to spend more taxpayer money to purchase more mortgage and other securities. The Fed already has a $600 billion program in place, but apparently that is not enough.

Bernanke claims that his balance sheet is shrinking. He said it dropped 17% from its peak in December from $2.31 trillion down to $1.90 trillion. Bernanke's theory is that if you increase the balance sheet (add more money) the economy will pick up faster.

Bernanke pointed to "trouble in river city" (from Music Man):

New car loans are at a rate of 7.32%
Corporate bonds are 6 percentage points above Treasuries
The Bloomberg U.S. Financial Conditions Index is still about five standard deviations below the average of 1992-2008.

So what can we look for? Britain last week bought Gilts (long term bonds) to pump additional money into their banking system. One option the Fed has is to do the same, namely buy U.S. Treasuries to create new money and thereby speed up the flow of credit.

The Fed will issue its statement at 2:15 p.m. ET tomorrow.

Do you believe the Fed should print more money?

Tags: bernanke, federal reserve, FederalReserve, fomc, inthenews

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Reader Comments (Page 1 of 1)

3-17-2009 @ 6:39PM

clikdawg said...

Catch-22: "We can do anything you can't stop us from doing."

-- from the Joseph Heller novel, "Catch-22"

3-18-2009 @ 10:58AM

manny.cabanilla said...

I believe that the Fed should print as much money as they can for systematic distribution to vital parts of the country's financial outlets and most of the balance to hold it on a "standby" alert notice.
The most destructive phase of the recession is just beginning as can be seen from the rise in the cost of commercial credit locally but also globally.

3-18-2009 @ 7:53PM

clikdawg said...

Manny --

Two words for ya:

Hyper. Inflation.

The more you print, the less it's worth -- like Confederate dollars. Print enough of it, no one accepts it any longer as legal tender.

There is very little difference between money unbacked by any real value and counterfeit money. If you are counting on devaluing China's vast investment in the US, please be advised that you are courting WWIII.