Symbolic gestures and the needs of the few

So some banks symbolically buy money from the Federal Reserve to show that there is sufficient liquidity in the market to avoid galloping deflation due to the collapse of the mortgage-backed securities market. Why is the Federal Reserve giving this money to banks, rather than mortgage lenders or mortgage holders? And why is everybody worried about inflation anyhow? I mean, wouldn't one way to get out of the mortgage crisis be to inflate the currency until the incomes of the mortgage borrowers rises enough to meet their mortgage obligations?

But that is assuming that we have a government whose job is to ensure the well-being of as many Americans as possible. We do not. We have a government whose job is to ensure the well-being of the wealthy elites who run our nation. And inflation is very, very bad for them, because they own a lot of debt instruments (bonds) and the interest paid on those bonds is not going to rise if the inflation rate rises, rather, the bonds will become worth less and less (in real terms). The ideal, for our elites, is to keep inflation at a positive but relatively small and stable amount.

The converse, deflation, is not good for these elites either, because then the debtors paying them money on those bonds cannot meet their payments (due to the bonds being denoted in the older cheaper dollars and now expected to be repaid in newer more-expensive dollars). Thus the Fed policy over the past 25+ years, which has been to tweak money supply to insure a small and predictable amount of inflation. This is what is best for the elites, and the people who run our government have had the philosophy for the past 25+ years that, "what is good for the elites is good for the people." Rather self-serving, but so it goes.

Anyhow, things have been wobbling out of control recently. The collapse of the housing securities market risks galloping deflation, which is not good for either the holders or payers of debt instruments, though it is good for the elites in the sense that they'll be able to pick up a lot of rental properties for cheap via buying the loans for pennies on the dollar from bankrupt lenders and then foreclosing on the properties. Thus the recent attempts to inflate the money supply to prevent galloping deflation, while not doing so in a way that would bail out the mortgage lenders or borrowers. It's uncertain what will happen here, but it's a risky high-wire act that if it works will be very, very good for the elites who rule us, and pretty bad for the poor suckers who just lost their homes or for the middle-class 401(k) holders and foreign investors who are the principle holders of mortgage-backed securities. Which is, I suppose, the best that can be done in a nation where the wealthy elites choose who we are allowed to vote for in all national elections, meaning that We the People have no voice in our governance (and don't seem to care, strangely).

- Badtux the Economics Penguin