THE FED : Digging the Hole deeper and deeper !!

[link to www.larouchepac.com]


The Fed: Digging the Hole Deeper and Deeper


May 19, 2008 (LPAC)--Since last December, the Federal Reserve has set up three new lending facilities, one to lend to depository institutions and two to lend to investment banks, and the amounts of money loaned to these institutions has grown steadily. The Term Auction Facility (TAF), created in December to loan to commercial banks and thrifts, originally had a $40 billion loan cap, an amount since increased several times, to the current $150 billion. Now, according to the Wall Street Urinal :-D , a discussion is under way in financial circles to both make the TAF permanent, and to increase the length of the loans it makes to three months from the current 28 days.

At the same time, the Fed wants to begin paying interest to banks on the reserves they set aside with the Fed, in what amounts to yet another subsidy to the banks. Congress has already passed a law authorizing such payments beginning in 2011, but on May 13 Fed chairman Helicopter Ben Bernanke sent a letter to House Speaker Nancy Pelosi saying, "We recommend that the date be changed to make the legislation effective immediately."

The Fed's desperation is showing. Despite all the recent spin about how the worst is behind us, the Fed knows that the collapse is accelerating. With a month and a half to go before the end of the second quarter, the drumbeat for a new round of bailouts is building. The Fed made major interventions two weeks before the end of the fourth quarter of 2007 and two weeks before the end of the first quarter of 2008, and another intervention is no doubt planned for mid-June, assuming the banks are still open at that point.

These interventions don't work, as demonstrated by both the collapse of Bear Stearns and the fact that each intervention is larger than the one before. All the Fed is accomplishing with its money pumping is feeding the hyperinflation in the financial markets, and making things worse, not better. It's time to stop digging, and start rebuilding.