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Conservative Republicans regularly accuse liberal Democrats to trying to solve problems by throwing money at them. The Federal Reserve has been throwing billions into the banking system to stabilize the credit markets and no one has been complaining about it.
This week the Fed participated in an unprecedented global rate cut: An orchestrated cut in interest rates with 20 other nations in an attempt to encourage financial institutions to borrow from their central banks and begin making loans to credit-starved businesses.
And the U.S. Treasury said it would begin to tap the $700 billion in bailout money to buy ownership shares in willing banks. The theory is that banks wouldn’t be so afraid to make loans if the government is in partnership with them.
The Fed also cut its key interest rate to 1.5 percent. That rate was as high as 5.25 percent just two years ago, and it’s hard to believe that just this spring the Fed was more worried about inflation rather than the deflating economy we have this fall.
And Washington is expecting some kind of gesture out of the G-7 finance minister who will be in the capital this weekend for the annual meeting of the World Bank and International Monetary Fund and a visit with President Bush.
The Fed has to be credited with persistence and imagination. Back in March, it offered $400 billion in loans to the mortgage market; it pledged $200 billion to prop up Fannie Mae and Freddie Mac; it guaranteed $29 billion to underwrite the sale of investment bank Bear Stearns; it put $85 billion into insurer AIG; and it offered $50 billion to help out money market funds. And then there’s the $700 billion in bailout money.
And still the bad news continues. The IMF said the U.S. economic slowdown would last years, not months, and that our all but certain recession would be the worst since 1982.
If shoveling money at a problem work, we should by all rights be close to having this thing licked.