To rescue economy, Fed gets ready to twist and shout

The Bottom Line on MSDNC ^ | September 20, 2011 | John W. Schoen

[cc2k]

After pumping $2 trillion into the system, pushing interest rates to the floor and making a bold promise to keep rates low for two years, the Federal Reserve is running out of options.

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“It's a pretty critical meeting for the Fed,” said Jeffries market strategist David Zervos, a former Fed adviser. “It's one of those meetings where we know there's going to be a change. It's not just the perfunctory ‘Let's meet and greet and let's make a statement that we're vigilant and we know what we're doing.”

<snip>

As the U.S. economy falters, Europe has presented Fed officials with an even greater challenge. Last week, the U.S. central bank joined others around the world to open their "dollar windows" by offering to swap as many dollars for euros as the European banking system needs to fund its dollar-denominated loans. The U.S. banking system is believed to be relatively well ring-walled from the potential fallout of one or more European bank failures. But it's impossible to predict just where the damage might be inflicted from another Lehman Brothers-like financial panic.

U.S. Fed officials are relying on their European counterparts of head off disaster. But the European Central Bank is badly split over how to deal with the crisis. It also has much less capital to work with then the U.S. central bank.

The historic strains on the system in the U.S. and the cloudy economic outlook have also left Fed policy makers divided on how to proceed. Some “hawks” on the policy-setting committee fear that too much easy-money policy will spark a surge in inflation that will be difficult to contain. On the other side of the table, the "doves" argue that the weak U.S. economy and banking crisis in Europe argue for more aggressive moves.

[cc2k]

The fed is exposing itself to much more risk from the Euro problems. Helicopter Ben has been loading up long range transports bound for Europe (or, more likely, just wiring it in). It will be interesting to see how much the Fed "expands its balance sheet" by digitizing new money and "loaning" it to the European banks.

It will also be interesting to see what the effects here will be when the Eurpean banks have issues from the debt crisis over there.

Can you say EuroTARP?

[yoe]

Rep. Issa and Senator Grassley should began investigating the Federal Reserve to see how they keep their books.........

[fhayek]

Can you say EuroTARP?

More like EuroTRAP.

[Candor7]

More like EuroTRAP.

You bet. It would be far better policy to allow the socialist states of Europe to tank and end the socio-economic dole that is so end point destructive to their citizens and to healthy economy.Let this be their end and get back to free enterprise and entrepreneurial creativity, beyond governmental mandarin interference.

MESSAGE: SOCIALISM HAS FAILED.......GET IT EUROPE???