I would first advise the Readers to examine this Post by Mish, then ask themselves whether the Fed has been a Help, or a Hindrance. The Fed has kept the markets awash in Cash by their actions in traditional Keynesian style. They did this though conscious that this is a Recession driven by Consumer failure, the major element being the fact that Homeowners are burdened by overly large mortgages. The Fed Cash was all intended to keep Banks afloat, using the Statement that some Banks are too large to fail. In truth, it was exactly that mortgage structure which should have fallen. The heavy excess Cash has threatened the value of the Dollar, maintained the price of Commodities above their Supply model, and actually raised the Operational Costs of all business, with the worst aspect slamming into small business–the heaviest Employer in the system. Mike thinks the Fed policy is mismanaged; I believe the Fed is becoming the major Cause of the Recession.
The Fed needs to remove itself from direct interference in the markets. It must first stop supplying additional Cash to a market structure which is already overcapitalized. One does not pour Gas onto a burning Fire, if one wants to put it out; the Fed funding is actually granting more fuel to a Fire which is already burning because Debtors cannot maintain their Repayment schedules. One should not support Debt holders, who can thereby insist on repayment of loans granted foolishly to Borrowers without the Income to repay the listed schedules. The only Problem solution has always been Bankruptcy for both Debtors and for Creditors, all of whom were stupid enough to have organized such mortgages in the first place, when the evidence was always present to establish that failure would be the only Result.
We are now in the unenviable position of having wreaked Production schedules, and watching Commodity pricing march back to pre-Recession values, all based upon the Fed provision of Cash to the markets. The World is shivering with anticipation–our great Exporting partners–as they can hold to their current Prices, and watch the American economy disintegrate under the Fed paying Everyone, except for that select majority of Americans who actually need the Cash. The humor of the Situation lies in the Answer to our woes, which will shock Everyone but this Author; We need to discontinue the Bush Tax Cuts. This Removal would curb Consumer desire to purchase Imports, make Business assume some of the Cost of Government, bring in a major flow of taxes to pay for excessive Government expenditures, and produce huge outrage at those Government excesses in the first place. It is the Solution, but it will never be adopted, so that We will stumble along in Recession for many years! lgl