More Unconventional Ways The Fed Can Add Liquidity

Nobody expects the Spanish Inquisition!

Our chief weapon is surprise. Surprise and fear. Fear and surprise.
Our two weapons are fear and surprise. And ruthless efficiency.
Our three weapons are fear and surprise, and ruthless efficiency and an almost fanatical devotion to the Pope.

Our four...no...amongst our weaponry....amongst our weaponry are such elements as fear....I'll come in again.

-- Terry Jones, Monty Python's Flying Circus

Here are my top five guesses as to how the Fed plans on increasing liquidity, countdown from five to one.

5. Forget the loans, just buy the collateral. Last week Jeffrey Lacker, President of Federal Reserve Bank of Richmond, re-iterated that the Fed's discount window is wide open and it will take mortgage backed paper, auto loans, even boat loans as collateral.

4. Break out the comfy chair. Ben Bernanke, a great student of the Spanish Inquisition, has used its chief weapons to perfection.

3. Buy it Now on eBay. If the Fed really wanted to put money in home owner's hands, it could use its eBay account ("HelicopterBen") to raise the bids on all kinds of stuff. Underwear, unused wedding dresses, keys to my old car, mac and cheese (hmm-hmm good). That would put cash dollars right into the hands of consumers who have to sell all their belongings to meet the higher mortgage payment from their reset ARMs.

2. A new Bravo reality show. Five Fed Governors go head-to-head trying to save the financial system, one foreclosure at a time. These deeply flawed, yet lovable characters race against the clock (and each other), trying to flip a house before the foreclosure auction ends and another hedge fund blows up. Ben is the brainy academic who tries to lead his team of talented but socially misfit governors, Don is the cranky and stubborn bank veteran, Kevin is the naive one who can't ever stand up to the others, Randy is the cocky one who knows his mad central banking skillz trump all the others, and Fred just tries to make it to the next round by not doing anything too daring or too stupid. Find out whose left after this weeks episode of "Property Bailout".

1. Carpet bomb the US with cash. Screw the helicopters, bring out the big guns. Instead of dropping wads of cash on Iraq, Bernanke should direct our commander-in-chief to fire bomb cash dollars onto the worst areas of the housing recession - Florida, Arizona, Nevada and California. Bernanke, a great student of dropping things out of helicopters, has stated that, while unconventional, carpet bombing money is also an effective monetary policy tool. The government already tested this technique in 2002 by sending every parent in the US a $400 "tax credit". This averted a more serious recession and only had the minor side-effect of raising the CPI from 1.2% to 3.0%. Bernanke speculates the only side effect of carpet bombing bags of money is inadvertently killing some of the intended recipients.

This Article is from contrahour.com