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Politics : American Presidential Politics and foreign affairs -- Ignore unavailable to you. Want to Upgrade?

To: TimF who wrote (31380)	1/12/2009 7:13:36 PM
From: DuckTapeSunroof	Respond to of 71588

"The Fed has other tools in its arsenal besides the fed rates." Yes, I agree. (For example they can do things like they have now pledged to do with MBS --- accepting mortgage backed securities as collateral, loaning against them. This not only pumps liquidity out, but also allows them to place a floor price under MBS valuations). I was simply point out that ---- at or near ZERO in real Fed funds rates --- they have effectively exhausted their normal bag of tricks with short-term interest rates. "... Also real fed rates can go below zero." They could hand out FREE CASH, I suppose, if a bank borrowed from the Fed window... but that is so unseemly that I doubt it would either be practical nor really politically viable. (They could always move out further on the DURATION front, though. They could not only loan at the over-night Fed Funds window, but they could loan for two year T-Bills I suppose.) All of this would EXTREMELY unprecedented though. Further illustrating that their normal bag of tricks is at wit's end....