Wednesday, September 17, 2008
treasury to deposit cash into fed
all before this seemed to me to be about supporting asset prices and preventing debt deflation. maybe they've done this before, and i don't recall. but this is the first nakedly inflationary step on the monetary side i've remember seeing in the crisis.
UPDATE: brad setser notes correctly in the comments that this is not money creation per se. but as yves smith notes, this is an explicitly inflationary policy response to an unwinding credit bubble and debt-deflation -- with unknowable outcome.
The Federal Reserve chairman is employing the remedy he has long recommended, that a determined central banker can always reflate. If he is right, bye bye dollar, but in 1930, the central bank increased bank reserves but money supply contracted nevertheless because consumers and business hoarded cash due to distrust of failing banks. If the run on the shadow banking system continues, we may see similar results even though traditional bank will (hopefully) not see a cash exodus.
or, if you like, from the ft -- the fed's run out of money.
keep watching that dollar/oil chart.