Federal Reserve attempts to stimulate economy

The Federal Reserve recently revealed a plan to pump $600 billion into the U.S. financial system in order to  "stimulate the economy in large part by lowering mortgage and other interest rates," according to an article in the Washington Post.

The statement released by the Federal Reserve stated: "The Committee intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month."

Federal Reserve Chairman Ben Bernanke, wrote an op-ed in The Washington Post in full support of the plan. "This approach eased financial conditions in the past, and so far looks to be effective again," he said. According to Bernanke, stock prices are already starting to rise and interest rates have fallen since the announcement.

Professor Clopper Almon, longtime economics teacher at the University of Maryland, didn't jump on Bernanke's bandwagon.

Almon pointed out that the $600 billion was going straight to the banks, which had a strong hand in collapsing the economy in the first place. He said he didn't "have great confidence in the banks to spend the money right," because there aren't the right regulations in place to keep them from doing what they did before.

He mentioned one regulation, Plan B, proposed in September 2007 by University of Chicago professor Luigi Zingales. The plan would allow homeowners living in an area where house values have dropped by more than 20 percent to re-contract their mortgages. Almon said this would take the frivolous scrambling of investors who have a hand in each mortgage out of the equation, allowing for an easier flow of money.

The current regulations, Almon said, only clog up the spending pipes, further slowing the growth of our economy.

Bernanke, in his Washington Post article, recognized the need for countrywide cooperation. "The Federal Reserve cannot solve all the economy's problems on its own. That will take time and the combined efforts of many parties, including the central bank, Congress, the administration, regulators and the private sector."