August 2, 2010 Reading Time: < 1 minute

“Forcing banks to take undue risk for the sake of the economy would result in banks recklessly engaging in the behavior that precipitated the financial crisis in the first place! Banks could still decide not to lend to small businesses and consumers, preferring to party like its 2007 by engaging in LBOs, M&A financing, etc. The outcome could easily cause a recession far deeper than has already been experienced.

Inflation, deflation, unemployment – it all becomes meaningless. Once interest rates go below a certain point, the banking system ceases to function anymore. The paradox is that the Federal Reserve as bank regulator requires a certain level of highly liquid assets such as Treasuries while at the same time competes with banks to acquire these same types of liquid assets! By engaging in further quantitative easing, the Federal Reserve would crowd out the very institutions that it would like to see stockpile high quality liquid assets.” Read more.

Bullard’s Bipoloar Fed Strategy
Wall Street Weather 
Seeking Alpha blog, August 1, 2010. 
 
Image by Francesco Marino / FreeDigitalPhotos.net.

Tom Duncan

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