12.16.2008

Take our money, please….

The Fed cuts its benchmark rate to near zero

The Federal Reserve Bank announced today that it will cut its Federal Funds interest rate to 0%-.25%. It will make this cut because:

…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.

Moreover, "…inflationary pressures have diminished appreciably." And, finally, "…the Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time."

The New York Times report asserts that, "Far more important than the rate itself, the Fed bluntly declared that it was ready to move to a new phase of monetary policy in which it prints vast amounts of money for a wide array of lending programs aimed at financial institutions, businesses and consumers."

This new strategy appears to be, as Business Week characterizes it, "Ben Bernanke's 'shock and awe' campaign." I would suggest that "shock and awe" is a disturbing but, perhaps, apt name for Bernanke's program since the Iraqi "shock and awe" campaign was a prelude to a much greater disaster.

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