The Federal Reserve will pump an additional $630 billion into the global financial system, flooding banks with cash to alleviate the worst banking crisis since the Great Depression.
This dovetails with something I’ve been saying for a long time. In essence Bernanke can print as much money as he wants, so the idea that Hank had to have 700 billion NOW always seemed a bit strange to me. If Congress didn’t give Paulson the money, Bernanke could always just make it.
Mind you, apparently Bernanke did this before the final vote. I wonder if he knew at that point that it was going to fail and was trying to get ahead of the curve, or if he really thought the bailout would cause 630 billion worth of turmoil. Not much of a vote of confidence.
Real world effect? The inflation which was beginning to die down will get boosted back up. Gas prices were dropping. Not so much now. This completely blows the Fed’s balance sheet out of the water, they are now past the 800 billion dollars they had (since that already spent over 500 billion). That puts it clearly into the "running the presses hot" stage. And as any conservative Chicago School economist can tell you, when you do that, inflation!
Helicopter Ben Bernanke has proved what he deserves his name. This is indeed the equivalent of dropping money from helicopters. Since the one thing everyone agrees is that this isn’t a liquidity crisis, it won’t solve the problem. But it may soothe the waters for a time. 630 billion is a LOT of money.