Bernanke is no fool. He knows exactly what he's doing. He needs to keep mortgage credit growing or the whole house of cards falls. Do you really expect him to announce that the credit bubble has burst and we all need to take our medicine? He knows that credit has to keep growing and the government's fiscal policy needs to be on full throttle just to keep the bubbles we have from deflating. His Deflation speech from 2002 tells everyone exactly what he plans on doing.
"If lowering yields on longer-dated Treasury securities proved insufficient to restart spending, however, the Fed might next consider attempting to influence directly the yields on privately issued securities. Unlike some central banks, and barring changes to current law, the Fed is relatively restricted in its ability to buy private securities directly.12 However, the Fed does have broad powers to lend to the private sector indirectly via banks, through the discount window.13 Therefore a second policy option, complementary to operating in the markets for Treasury and agency debt, would be for the Fed to offer fixed-term loans to banks at low or zero interest, with a wide range of private assets (including, among others, corporate bonds, commercial paper, bank loans, and mortgages) deemed eligible as collateral." |
