Prior to this capital infusion into the banks, there were direct liquidity injections to prevent a total freezing of the credit system. As the cash was swapped for the collateral the fed sterilized the transactions by selling Treasury paper. The last $150 billion(?) or so was not sterilized - so the monetary base is starting to grow. They may catchup soon thereby limiting any deflationary threat. Even if they get this right, they'll need to withdraw some liquidity sometime later or risk higher inflation than is acceptable. Idiot? - remains to be seen.
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Prior to this capital infusion into the banks, there were direct liquidity injections to prevent a total freezing of the credit system. As the cash was swapped for the collateral the fed sterilized the transactions by selling Treasury paper. The last $150 billion(?) or so was not sterilized - so the monetary base is starting to grow. They may catchup soon thereby limiting any deflationary threat. Even if they get this right, they'll need to withdraw some liquidity sometime later or risk higher inflation than is acceptable. Idiot? - remains to be seen.
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