It seems that the deflationary effect of banks and other lenders pulling in their margins was too much for the Keynesians at Treasury to handle. Typical for Keynesians they will massively inflate the dollar in response. They have already done so to the tune of $3.18 Trillion, which is in addition to the $700 Billion Troubled Assets Rescue Plan, or TARP. Today, the Fed promised to make more than $7.76 Trillion available to keep the financial bubble inflated instead of letting it pop. This financial bubble certainly would be painful if it popped. But imagine how big the next bubble will be. The housing and credit bubble we’re dealing with now was created by keeping the Fed’s discount rate at 1% for two years after the combined hit of the dot-com bubble failing and 9/11. Add in Fannie Mae’s and Freddie Mac’s misbehavior and the perverse incentives of the Community Reinvestment Act (CRA) and it’s easy to understand why the real estate markets have become so toxic to the greater economy.
What else is going on? Obama wants to give another trillion or so in stimulus plans to slow down the inevitable collapse and make it last longer. The TV networks are going to ask for a bailout. The government bailed out Citibank. The Fed has a secret $893 Billion loan portfolio. Look at the pieces of the $7.7 Billion bailout, or is it $7.4 Billion. Sheila Blair plans to spend $24.4 Billion to bailout homeowners who haven’t been making their payments.