Fed's License To Print Money

Will the latest round of bailout bucks—$800 billion promised Tuesday by the Treasury and the Federal Reserve—finally do the trick to resuscitate credit markets and slow the shrinking of the economy? Or is Washington, D.C., just needlessly throwing money at a problem too big to fix with taxpayer cash? On the pages of the New York Times, Washington Post, and Wall Street Journal this morning, economists and market pundits of all stripes are debating the latest stimulus plans designed to finance consumer loans and push down mortgage rates. According to the NYT's calculation, the latest bailout brings the federal government's tab this year alone to a staggering level. The feds are now on the hook for "$7.8 trillion in direct and indirect financial obligations"—that's equal to "about half the size of the nation's entire economy and far eclipses the $700 billion that Congress authorized for the Treasury's financial rescue plan," the newspaper writes.

This latest measure is really dividing economists. "We are sort of spitting in the wind," a chief economist at MKM Partners LP in Greenwich, Conn., told Bloomberg. "Banks won't be throwing a lot of loans out there when they fear—rationally—those loans may not be paid back." The WSJ sees it differently. The Fed's moves set off a chain reaction in the lending markets on Tuesday with "rates on 30-year fixed-rate mortgages dropp[ing] by roughly half a percentage point to about 5.5% for borrowers with good credit scores and substantial equity in their homes," the newspaper reports. The flip side: No stimulus plan, no matter how big, is likely to help those with bad credit get refinancing. Still, mortgage rates are expected to finally drop and stay down with the latest move, accomplishing something the Fed has been unable to influence through interest rate cuts, the Washington Post writes. It's no secret why: "The Fed is effectively printing money and funneling it to home buyers," the newspaper explains.

The timing of the latest stimulus package is no coincidence. Home prices fell again in the third quarter, according to CNNMoney, citing the closely watched S&P Case-Shiller Home Price national index. House prices recorded a 16.6 percent decline in the latest quarter, a record plunge.

It's not surprising that the worse things get in the United States, the more pain is felt overseas. As demand from abroad slows, Chinese factories are shutting down, putting the brakes on growth. "Economists are forecasting that after growing nearly 12 percent last year, China's economy could slow to 5.5 percent in the fourth quarter of this year—a stunning retreat for a country accustomed to boom times," the NYT writes. The World Bank says China's economy will grow this year by 9.4 percent, revised downward from a previous 9.8 percent growth estimate, according to the WSJ.

The European outlook is increasingly grim as well. On Wednesday, the European Central Bank was admitting what many private economists have been saying all along: It appears that the Euro Zone economy will contract further in 2009, Reuters reports. To pull the region out of its funk, the continent's biggest economies today are being urged to consider an emergency $170 billion stimulus plan that includes tax cuts and targeted investment, the BBC writes. There's just one hitch: In order for it to work effectively, every country in the EU zone (or at least all the significant economies) have to sign up for the plan—no small feat in the always-squabbling trading bloc. Markets across Europe were down in early trading.

You know retail spending is depressed when customers won't shop online. BusinessWeek reports on "what's shaping up to be the first Scrooge-like Christmas for online retailing since the category first took off a decade ago." E-commerce sales, excluding travel, fell 4 percent from Nov. 1 to Nov. 23, to $8.2 billion, online-measurement firm ComScore reports. There is one silver lining online. Atlantic Records "has reached a milestone that no other major record label has hit: more than half of its music sales in the United States are now from digital products, like downloads on iTunes and ring tones for cellphones," the NYT reports.