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Fed to hold rates steady for two years
A trader watches the announcement that the U.S. Federal Reserve Bank will leave interest rates 'exceptionally low' until 2013 on the floor of the New York Stock Exchange August 9, 2011.
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Kai Ryssdal: Very nearly lost in all the hoopla about the S&P downgrade the past couple of days has been this item on the Washington D.C. policy calendar: Today, 9 a.m., Federal Reserve Building, Constitution Ave. in Washington. Regularly scheduled meeting of the Federal Open Market Committee.
The FOMC handles interest rates and, thereby, a healthy chunk of what happens in the American economy. Nobody really thought the Fed would do anything with interest rates today. And they didn't. But what they did do was pretty remarkable.
In the statement that follows every FOMC meeting, they said they're going to keep interest rates low -- near zero, that is -- at least through mid-2013.
From Washington, Marketplace's David Gura reports.
David Gura: Most economists thought the Federal Reserve would keep interest rates low. Bruce Kasman is chief economist at JPMorgan. He says nobody expected to see a timetable.
Bruce Kasman: To be signaling that you're likely to be on hold for about two years is a marked departure from anything the Fed has done.
That information was supposed to comfort consumers. Phil Swagel teaches public policy at the University of Maryland.
Phil Swagel: It means that anyone who is planning investment, or planning to borrow or to lend, can have a sense that interest rates will remain low over a long horizon.
But it didn't seem to calm the markets today. Investors know that at this point, there's not much else the Fed can do. Its toolbox is empty. It's out of ammo. Its pantry is bare -- you get the idea.
Tom Porcelli is chief U.S. economist for RBC Capital Markets. He says Ben Bernanke is still casting about for other options.
Tom Porcelli: But I think that the truth is, outside of additional bond purchases, we don't know what else they can actually come up with.
The Fed has purchased more than $1 trillion of bonds through a program called quantitative easing. That happened in two stages, known as QE1 and QE2. But after today's announcement, economists doubted they'll see any more buying. At least not any time soon. Three members of the committee voted against today's statement, with that mid-2013 date.
Swagel: And if they disagree with that, well that means they're a million miles away from wanting to do QE3.
In Washington, I'm David Gura for Marketplace.
The Bailout of 2011
In case you did not notice we just had at least as large a bailout as 2008. A week ago 2 year treasury bonds were paying over .38 bps. There was a huge meeting of bankers some of them serve on the federal reserve board a week ago. Over the last 7 days the 2 year note went from .38 to .27 and finally today we know why. Today the Fed announced that they would give there banks as much money as they want, and guarantee it would be close to free for the next two years. As long as they had secured the free money with assets like, yes you read ahead, treasury notes.
The 2 year notes dropped to 17 BPS today. Only the big banks that had access to the federal reserve decision in advance and knew this was coming. I am not even sure the smaller banks, the ones that own the Fed, were told in advance unless they were connected.
The fact was the financials were down over 20 percent and falling so they needed to bail out all their members. The capital markets are now flush with money, Yes for a short time people can breath a sigh of relief, once again Americans saved the big banks, But there is a cautionary tale starting in London about raping national wealth too many times.
The big problem is most of this wealth will once again find it's way to foreign markets, The bailout was for large banks and indirectly for bond holders. The equity markets will breath relief for a short while and the financials will pop back up. It will not last near as long as one thinks though.
The wealthy in the US know there are also wealthy and powerful in China and other countries. They may want a bit more and are growing resentful of the USA owning their reserve currency. They may fight back a bit right away, and quite a bit over time.
As Warren Buffet said there is class warfare and his class is winning, at least for now
How much pleasure is there to win over a planet that 80% of the population is in filth and misery?
I know some of the very wealthy are not sociopaths or psychopaths, It gives me some small comfort to fantasize maybe they will have a moment of guilt as they smoke their cigars, drink their brandy over tonight dinner. Maybe those are the three dissenters on “today’s†decision.
Okay probably not.
Ben Bumnacke is the top crooked banker in the USA. He props up the stock market by saying he will print money for the next two years all of which will go to the rich as a gift.
Here is another example of how crooked these banks are. I have an account at PNC Bank. I went in and asked them what happens if they wrongfully distribute my money due to wire fraud. They said they don't give a darn and that the bank isn't a good place to store cash. They said I should put my money in the stock market via one of their in house swindlers. How would I feel today if I listened to them?
I complained to the corporation and they told me to get lost.
We need to bring some of those British rioters over here and pay them to burn down a few banks.
I really just do not understand what is going on with the banks. For two years now, the Fed has been basically giving money away to them for free. Meanwhile, borrowers are paying 5 or 6 percent or more for mortgages. Seems to me the banks are making a very decent spread and, if they're not lending it to borrowers, just what ARE they doing with all this free money?
Thought you might appreciate this link to a conference held by the Roosevelt Institute on the Future of the Fed:
http://www.rooseveltinstitute.org/future-federal-reserve
The Fed has other tools at its disposal, including using QEIII to fund a green jobs/infrastructure bank. There are more arrows to its quiver, it just doesn't choose to use them.
