September 13, 2007 (LPAC)--The City of London's Financial Times reports today on plans within the Federal Reserve in Washington to adopt hyperinflation as their response to the break down crisis. The Fed is looking at "rusty tools," the FT writes, to help banks, and non-banks (i.e., hedge funds and their ilk), as the Sept. 18 interest rate announcement nears.

One possible move is to make a disproportionately large cut in the discount rate at which the Fed lends directly to banks, rather than simply lowering the main federal funds rate; e.g., if the Fed cut the funds rate by 25 basis points, it could cut the discount rate by 50 or 75 basis points, thus reducing, or even eliminating , the effective penalty on direct borrowing.

Unorthodox measures under consideration which "reach beyond banks to the stressed non-bank financial sector and the distressed markets for asset-backed commercial paper and non-agency mortgage-backed securities," include: 1) set up a facility to lend directly to nonbanks against their collateral (cf. 1989 S&L program); 2) establish currency swaps with European central banks to deal with pressure on offshore dollar money markets (cf. post-9/11 moves); 3) creation of a temporary special liquidity facility that would accept commercial paper at a discount and the sale of call options, giving banks the right to tap Fed loans in the future at guaranteed rates. "None of these steps appears imminent, but their use should not be ruled out," opines the FT.