Fiddling while Rome burns

The Fed is trying yet another unproven tweak for the economy instead of just freeing up the capitalist engine of small business. From My Way/Associated Press:

Fed is expected to take new action to lift economy
The Federal Reserve is running out of options to try to boost a slumping economy and lower unemployment. So policymakers are expected to reach 50 years back into their playbook for their next move.

Most economists expect the Fed to announce a plan Wednesday to shift money in its $1.7 trillion portfolio out of short-term securities and into longer-term holdings.

The plan could lower Treasury yields further. Ultimately, it could reduce rates on mortgages and other consumer and business loans, too.

Fed Chairman Ben Bernanke is expected to advocate the move despite criticism from within the Fed and from Republican lawmakers and presidential candidates.

On Monday, the four highest-ranking Republicans in Congress sent Bernanke a letter cautioning the Fed against taking further steps to lower interest rates. Their letter suggested that lower rates could escalate the risk of high inflation.

The plan the Fed is considered most likely to unveil Wednesday has been dubbed "Operation Twist" and dates to the early 1960s. The Fed used a similar program then to "twist" long-term rates lower relative to short-term rates.

Expectations that the Fed will do so again, along with renewed fears of another recession, have led investors to buy up U.S. Treasurys. Treasury yields have dropped in response.

The yield on the 10-year Treasury note last week touched a historic low of 1.87 percent. On Tuesday, it finished slightly higher, 1.93 percent.

They look back 50 years ago and fail to see the result. On August 23, 1960, the Prime Rate was 4.5% (first adjustment in 1960). The next adjustment was December 6, 1965 to 5%. It rose gradually and on March 25, 1970 was adjusted to 8% The all-time national high was a Prime Rate of 21.50% on December 19, 1980 under the last years of the Carter administration. I remember this well because I tried to get a bank loan to buy my first house in Seattle and could not -- had to find a place with owner financing. It gives me the willies to think that these idiotic ideologues are sending us down the same path again with little or no consideration for the outcome...