What is the Fed's next step? What are they thinking? Will it work? I think those questions have been discussed a lot over the past few weeks. Congress approved a $700 billion bailout package last week. Yet the effort seems not enough to raise consumer confidence. "In the United States, consumers appear to be significantly curbing spending; last month, employers cut more jobs than any month in 5 years."
Next step? Under a proposal being discussed with the Treasury Dept., the Fed could buy vast amounts of unsecured short-term debt that companies rely on to finance their day-to-day activities. In another word, the Fed will almost be lending directly to businesses. The Central Bank would buy unsecured commercial paper, "essentially short-term i.o.u.'s issued by banks, businesses and municipalities," which market has almost been shut down last week.
Will this proposal get approved? and the most important question: Will it be strong enough to convince consumers of a better economy?
1 comment:
I think that this could be considered an example of soft-budget constraints. How are these companies going to improve their business from the inside, by changing the structure of it, if the government keeps helping them out like this? By paying off this debt, the Fed is giving them less of an incentive to change.
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