Tuesday, October 7, 2008

Irrationality at the Fed

The Fed is going to buy short term debts in an attempt to "unclog" credit. How is this supposed to work? If credit is "tight" right now, is that not due to the rationality of lenders passing judgement on the ability of borrowers to repay under current conditions, as well as projected future conditions based on their knowledge of current conditions? What's going to make those lenders listen to the Fed? Simply because the debts the Fed buys will then be "guaranteed" by the federal government? What rational lender is going to see that as a guarantee, considering the amount of debt the federal government is already carrying?

Oh wait, the government can always print more money, right?

Yeah, right.

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