On the Fed Shoveling Currency Out The Door

Yesterday, the Fed cut rates, and the market screamed in anguish, because it was not enough.

Well today, the Federal Reserve, and other nations' central banks, came up with a scheme to deal with the credit freeze that is a result of what amounts to widespread insolvency in the financial markets (here, here, here, here), and here).

Basically, they are flooding the market with currency by lending out large sums of money on the basis of illiquid worthless securities.

Quotes from some of the articles cited above:

You will note that it allows the lending of up to 85 percent of the face value of AAA-rated collateralized mortgage obligations, if there is no observable market value.

...

So much for discouraging future risk taking.

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The most prominent sign of that is that the Libor, a benchmark for many dollar-loans between banks especially in Europe, has shot up as much as 0.8 percentage points above the federal funds rate. The gap is normally less than 0.2 points. A high Libor rate raises banks' costs of funds and thus the rates they charge borrowers. In addition, many U.S. homeowners have adjustable rate mortgages with linked to Libor.

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"Clearly, the Fed is feeling its way in the dark here," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

(Emphasis mine)

Nouriel Roubini says that this is, "Too Little Too Late To Address the Fundamental Problems of the Financial System."

I tend to agree with Dr. Roubini, but he's a bear, as I have been, for the past few years.

Honestly, I think that what is going on here is the beginning of a major devaluation of US currency, so people will be paying back loans in devalued dollars.

Basically, it's using inflation to get out of the problem. It was done during the Great Depression, and the amount ov exotic and dishonest leverage in 1929 is far less than now.