Dear Readers:
I depart from my customary prognostications and pontifications ("P and P" for short) to discuss the U.S. economy, and the Federal Reserve Board (the "Fed").
In today's NEW YORK TIMES, I learned that the Fed is reducing the discount rate, the special rate at which member banks can borrow from the Fed, and from their fellow banking fraternity members, to between 0.25% and 0.00%. This is not the amount of the reduction -- this is the actual borrowing rate! The article can be accessed by clicking on:
http://www.nytimes.com/2008/12/17/business/economy/17fed.html?8au&emc=au
My response to the article at issue is posted below for your your enjoyment. If you don't have time to read my response, a capsule synopsis of its import might be, "The Fed is doing a miserable job." And they are. In fact, they are not only failing to help the Nation through the current crisis, but they are planting the demon seeds of future runaway inflation. Mr. Bernanke and the Board Of Governors are like a haphazard MASH unit, giving a blood transfusion of the wrong type to the wrong patient. Both patients will likely die.
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Castle Responds To THE NEW YORK TIMES Article, referenced above:
The Fed's rate reduction is a foolish and heavyhanded misuse of monetary policy where a more prudent regulatory or fiscal policy governing banks and lending would have been far more helpful.
The Fed's action is merely symbolic of its continued frustration in dealing with a growing recession fueled by two principal variables: 1)growing unemployment and loss of disposable personal income, and the banking system's tightening credit to both consumers and merchants. The banking industry's pulling in the reins on lending is further ensuring the steepening of this recession.
Sadly, an economy built upon credit, is being starved by a banking system which has not been given any enforceable or quantitative directive by the Fed to extend credit to the merchants and consumers who so desperately need access to capital in order to restimulate the economy through commerce.
The Fed's policies are misguided, and only serve to help the banks to continue their incestuous, low-risk game of unproductive interbank borrowing and lending. Banks are essentially investing in eachother and treasury instruments without putting any money into the hands of needful and legitimate borrowers -- the foundation of our economy.
It does not matter what rate that banks are charged to borrow at the discount window when there is no compelling reason for them to extend credit to facilitate employment, production and consumption.
The irony is that banks are actually curtailing consumer and business lending activities! In doing so, they are helping to perpetuate and steepen this crisis.
What is the Fed doing to get capital into the hands of merchants and consumers? Absolutely nothing.
Douglas Castle
http://theglobalfuturist.blogspot.com/
http://theinternationalistpage.blogspot.com/
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I hope that you found the article, and my posted response, of interest.
Faithfully,
Douglas Castle, for THE GLOBAL FUTURIST
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