Fed Adds Liquidity and Economy Avoids Recession

Bloomberg (05/15/08); Berry, John M.
The Federal Reserve is supplying the U.S. financial system with more than $150 billion in cash, providing a liquidity cushion that has kept credit flowing and the economy expanding. The Fed has come under fire for extending loans to major securities firms rather than just to banks; and for accepting collateral other than securities either issued or guaranteed at least indirectly by the U.S. government. Fed Chairman Ben Bernanke counters that supplying liquidity during a banking crisis is what central banking is all about, adding that the central bank had to step up and provide the liquidity that was no longer available in the market. Otherwise, he asserted, even creditworthy households and businesses would not have been able to borrow. Over the 12 months ended April 30, commercial and industrial loans rose 20.9 percent at banks, while home-equity loans increased 9.9 percent and consumer loans rose 9.3 percent.