on November 30, 2011 in CBs, ECB, Fed, Inflation 97 Comments
Just looks like the Fed lowered the rate on its swap lines to keep libor down, which had been moving up to its prior swap line rate.
No big deal, apart from the fact the Fed shouldn’t be allowed to lend on an unsecured basis like this without explicit approval of congress.
Lending unsecured on an unlimited basis has the potential to be highly inflationary.
With the currency a public monopoly, the price level is necessarily a function of prices paid at the point of govt spending and or collateral demanded when govt lends.
Allowing unlimited unsecured lending has the potential to vaporize the currency. And while in this case that kind of abuse isn’t likely, the potential is there.