The Federal Reserve maintains it has more tools to combat deflation and spur economic growth, but some analysts don’t think it’s enough. On Friday, Fed chairman Ben Bernanke outlined three specific options the central bank is mulling: more Treasuries purchases, communications modifications, and lowering interest on excess reserves. TrimTabs Investment Research wonders if it’ll work. “We do not see how monetizing even more debt can solve a problem caused by too much debt,” Trim Tabs analysts said in their weekly liquidity review. “Moreover, we think the eventual impact of massive money printing on the credit and currency markets will be even nastier than the problems the Fed is trying to address.” The Fed has already purchased $1.4 trillion of MBS and another $300 billion of Treasury securities. TrimTabs said Bernanke has made it clear he will continue to purchase more. “Money printing could support asset prices for a time, but higher asset prices and even lower long-term interest rates will do little to improve the economy,” TrimTabs said. “The economy is not struggling because asset prices are too low and interest rates are too high… the economy is struggling because final demand is weak. Consumers have been forced to live on their incomes rather than on ever greater amounts of borrowed money.” The investment research firm also said the US economy is “in bad shape, but widespread gloom among investors [is] bullish from contrarian perspective.” Write to Jason Philyaw.
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