My Two Cents

A good move by the Fed

Chris Farrell Mar 19, 2009

I’m in Muncie, Indiana doing some reporting on the impact of the economic downturn. The “throw the kitchen sink” plan by the Fed to stem the economy’s downward momentum carries enormous risk. But the bold move is also smart. It just might work, and it doesn’t require asking Congress for more money at a time when anger at AIG, the bailout, financiers, etc. is justifiably roiling the political waters.

So, it’s a bold, smart move. A couple of questions, however

On the economic front, I wonder what is the difference between fiscal and monetary policy at this point. Aren’t the two blurring in reality?

On the wager front, if the Fed’s move doesn’t work, I’d expect stocks to fall and interest rates to rise, with investors anticipating the simultaneous nightmare of inflation and depression.

If the economy continues to falter, how much credibility will institutions at the commanding heights of the economy retain? Wall Street has no credibility. Congress has little legitimacy at the moment. The White House still has legitimacy, but it’s under strain. The Fed is still considered a premier actor on the global stage, but for how much longer. CEOs are losing their reputations by the day.

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