Given the wide variety of assets it can accept (in particular, non-AAA MBS), the Fed also has the potential to get itself into plenty of trouble, the sort of trouble that might require it to seek an even larger expansion of its powers.
With the collapse in the price of sub-prime mortgage backed securities and credit derivatives, the credit boom has moved into the crisis phase.
Unfortunately, by buying up MBS and propping up the market the Fed will only cause more harm than it already has.
It is hard to avoid the conclusion that the dollar could be ready for another beating.
The turmoil in financial markets is eliciting the usual response from the central bankers, all up there in their Hueys, ‘Die Walkuere’
The turmoil in the credit markets now emanating from the collapse of the housing bubble can be understood in the light of the theory of the busines
It follows that liquidity could come under severe pressure if the Fed decides to cling to the current fed funds rate target whilst the economy is weakening.
