The Federal Reserve don't know squat

We keep hearing about the Federal Reserve Bank's effort to try to end the recession by squeezing interest rates and and other schemes. The latest news about the bank came from Jackson Hole, Wyo.,

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where  Fed Chairman Ben Bernanke said  it will do more to boost the economy because of high U.S. unemployment and an economic recovery that remains "far from satisfactory."

Here are explanations for what took place at the conference from the Associated Press, New York Times, Wall Street Journal and the Chicago Tribune. If you don't quite understand it all (like me), check out these videos. Otherwise you can skip down to the rest of the post:

For most Americans, trying to understand the Federal Reserve is like looking into the dark, airless chamber in the labyrinth that is the government of the United States.

Conceived in controversy, the Fed is the government's central bank, one of whose functions is controlling the amount of cash held by individuals and institutions, domestic and foreign. When people who are worried about the government "printing money" to meet its debt they're really talking about the Fed (even though the actual printing is done by the Treasury Department).

One reason that the fed is so controversial is that it has expanded its powers to the point that its tentacles reach into many corners of American life. And it has expanding further, crossing what John Cochrane,  a professor of finance at the University of Chicago Booth School of Business, calls a bright line that it should not traverse. In his Wall Street Journal analysis, "The Federal Reserve: From Central Bank to Central Planner," Cochran says:

Momentous changes are under way in what central banks are and what they do. We are used to thinking that central banks' main task is to guide the economy by setting interest rates. Central banks' main tools used to be "open-market" operations, i.e. purchasing short-term Treasury debt, and short-term lending to banks.

Since the 2008 financial crisis, however, the Federal Reserve has intervened in a wide variety of markets, including commercial paper, mortgages and long-term Treasury debt. At the height of the crisis, the Fed lent directly to teetering nonbank institutions, such as insurance giant AIG, and participated in several shotgun marriages, most notably between Bank of America and Merrill Lynch.

Well, once you get into it, you'll understand why I posted the simpler explanation above. Even the Wikipedia entry about the Fed is tough going. The YouTube posts  examine such concepts as "quantitative easing," in terms that at least I could understand.



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