This chart hasn't been discussed. Maybe it should be given the large move. http://research.stlouisfed.org/fred2/series/BASE If the bailouts don't succeed, go to plan 2. Plan #2: INFLATE INFLATE INFLATE!!!
And the Fed can just as easily "drain" the monetary system too. In fact, Bernanke has already eluded to "sterilizing" all of these injections during his testimony in front of Congress a couple of months ago.
You need a measurement of M2 here. Increases in monetary base and reserve balances do not translate into inflation so long as M2 doesn't grow, which means money is not making it to loan activity. Recent announcements of MBS purchases as well as other tricks are an attempt to bypass the banking system and inject money directly. And this latter scheme would be unsterilized money printing.
Reserve balances declined this past month. http://research.stlouisfed.org/fred2/series/BOGNONBR Can anyone explain what happened there?
I believe (not sure) this is the chart you want to look at: http://research.stlouisfed.org/fred2/series/RESBALNS?cid=123 600% + growth
Plan A is still in effect as the Academic is expected to cut interest rates this week. Plan B is alive and well as Citigroup has been backstopped. Plan B also includes credit facilities. The quantitative easing or Plan C really makes no sense. Was it suppose to drive down mortgage rates to prop up housing? Prices are still falling. Lower borrowing costs for corporations floating paper? That's yet to be seen. So what's Plan D? It's starting to look as if 2009 will be the Year of the Printing Press as China to increase supply of money to boost economy.
Yes and yes. Landis is eternally optimistic the FED will act in the best interest of economic stability. They never have. At the end of the day, its all political. Whether the Elites want deflation or inflation, time will tell. All the preemptive talk about sterilization is largely for public consumption. Every major fiscal disaster of the 20th Century was caused by the FED. And in many cases, prolonged by the FED. You actually believe the best Economic Minds in the Country don't understand the relationship between money supply and inflation? Or money supply and the business cycle?? Its base propaganda. Just like Government. Plead one thing and do another. Kashkari comes to mind. Its called lying, folks. Imagine that.
There was a comment on Yves' post here: http://www.nakedcapitalism.com/2008/12/fed-ponders-issuing-debt-to-finance-its.html (topic is about the fed's idea to issue its own debt) ---------- The Rude One said... This end run around Treasury will establish a parallel currency. Fed debt can and will be exchanged without limit for all the toxic assets the Fed deems as strategic, cutting the connection between the issuance of currency and the tax base that supports Treasury borrowing. Here we see the genesis of the next bubble, which is of the currency itself -- hyper or mega or what have you inflation. The excess liquidity will be that much harder to sterilize, if in fact we can talk at all of sterilization when the economy will likely be in the tank for some time, and sterilization would make it re-tank under most scenarios. Say what you will, Fed debt would effectively be a parallel currency and as the saying goes, the bad money might tend to drive out the good. DECEMBER 10, 2008 12:06 PM So, according to this, it may not be possible to actually sterilize this massive run up. Someone who knows about this care to comment?