Fed Cuts Aid
Aid for money markets, bond dealers and foreign central banks was cut off this week as the Federal Reserve shuts down emergency liquidity programs put in place to stave off the credit crisis resulting from the 2007 US mortgage collapse. According to data released this week by the Federal Reserve, a $2.25 trillion balance sheet contrasts sharply compared to $924.2 billion noted for September 2008, approximately 5 days prior to the bankruptcy filling of Lehman Brothers Holdings Inc.
New Federal Reserve Chairman, Ben S. Bernanke (sworn into his second term just yesterday), made the move to shut down the programs as a first step focused on avoiding a depression, and bringing down the unemployment rate, currently at a 26-year high. To do this, Bernanke’s plan promise is to keep the benchmark interest rate low for a longer period of time as the financial crisis fades. Others disagree, stating that “normal isn’t zero,” as the overnight loans interest rate among banks has been near zero since December 2008.
Don Galante, Senior V.P. at MF Global Ltd. Was quoted by Bloomberg as stating, “It’s a sign telling you we’re beyond the financial crisis. But that’s not the problem today. The problem today is the broader economy.”
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