Once upon a time, only depository institutions, plain old-fashioned commercial banks were allowed to borrow from the Fed, and then only using T-Notes or T-Bills as collateral. Then Investment banks were allowed in, and the collateral was expanded to Agency debt. Now it appears that even insurance companies can go to the window and use any investment-grade debt (and we know just how on top of things the Rating agencies have been about quickly reflecting the true financial conditions ) as collateral.
Heck, they are now even allowing equities to be used as collateral. What is next, a beanie baby collection as collateral? Down that road leads to hyperinflation (i.e. the United States of Zimbabwe). Theoretically, it would be possible to precisely offset the deflation with this induced inflation, resulting in stable prices. However, with the lags inherent in monetary policy even in the best of times (usually 6-9 months) and incomplete data collection, that will not be easy.
The best comparison I can make is that the Fed will have to thread a needle while sitting in a car going 70 mph down a poorly maintained dirt road, and they only get one chance. Stay away from the Financials. This is not over, folks.
Heck, they are now even allowing equities to be used as collateral. What is next, a beanie baby collection as collateral? Down that road leads to hyperinflation (i.e. the United States of Zimbabwe). Theoretically, it would be possible to precisely offset the deflation with this induced inflation, resulting in stable prices. However, with the lags inherent in monetary policy even in the best of times (usually 6-9 months) and incomplete data collection, that will not be easy.
The best comparison I can make is that the Fed will have to thread a needle while sitting in a car going 70 mph down a poorly maintained dirt road, and they only get one chance. Stay away from the Financials. This is not over, folks.
