This morning the local financial press was carrying the staggering news that the Federal Reserve was pumping an additional $630 Billion into the financial system through the use of currency swaps and their already in place TAF.  This announcement is only the latest in a seemingly never-ending parade of liquidity injections. As of the end of July, the TAF had totaled $735 Billion, and the TSLF an additional $647 Billion. August and September’s numbers notwithstanding, the total injection to date is a whopping $2.012 Trillion. 

As this blog entry is being written, the US House of Representatives is debating and preparing to vote on a $700 Billion bailout package for the US banking system crafted and backed by the US Treasury Secretary. There is much hype and disagreement amongst politicians regarding this package, but in truth, the Fed has been doing much of what the bailout bill proposes for the past year or so. Why then must we rush to judgement on this bill? The Fed has asserted all along that it is in complete control of the financial turmoil so why the big hurry?

It seems to be rather likely that once again the devil is in the details. Whatever poor excuse for legislation finally makes it through Congress must be analyzed carefully as it will most almost assuredly either legalize something that the Fed has been doing all along or will seek to accomplish something well beyond the scope of the Fed’s activities.