More profit for the Fed tomorrow. When will the madness end?

Question

They're doing it again. Ben Bernanke has announced that the Federal Reserve is printing another 8 billion dollars tomorrow to help with the ongoing real estate subprime market fiasco. Shouldn't this burden be born by the people that own the bad debt instead of financed on the backs of American workers?

How lucky for the owners of the Fed. They get to print money then charge the government interest on it. I want their job!

It's a shame that our currency is going to become even more diluted.

Answer 1

You should stick to home theater questions.

While true, the Fed earns interest on it treasury securities that it will buy to inject the $8 bil into the money supply, the Fed rebates to the the US Treasury all income earned in excess of what is required to fund its operations- research, bank regulation, etc. So, in one respect your are sort of right. the interest earned goes to the owners of the Fed- the american tax payer.

The second fallacy is that the $8 billion is going to bail out sub-prime lenders. Even though the Fed Funds rate decreases, the credit spread charged to reckless lenders does not go away. Consequently, the added liquidity is not going to make a difference in the end- the most egregious of the sub-prime lenders are still going to have to liquidate or restructure to survive.


You are also completely ignorant about the benefits of the falling value of the dollar. It is encouraging corrections of macro economic imbalances (i.e., trade deficit, low savings rate, etc.) that have to be corrected eventually. It is also benefiting export related output and employement, which is offsetting the employment and output lost because of the current credit crunch and real estate woes.