The U.S. Federal Reserve vowed to buy short-term debt in order to unlock the credit flow that business owners rely on for quick loans, but today it’s still not clear exactly when the relief will come or whether the move will indeed trickle down to the everyday entrepreneurs who need help the most.
The buying spree was designed to grease Main Street businesses and to impress the stock market, but so far it has done neither. Under the plan, the fed is vowing to purchase an unspecified amount of quick-turnaround “commercial paper” that’s issued by major corporations and financial institutions. It’s usually bought by institutional investors, but those big spenders are skittish about backing just about anything these days, including loans and stocks.
The effect has been a constricted credit market, particularly when it comes to the kinds of fast credit lines that entrepreneurs have relied on to cover spikes in expenses–payroll is a good example–when income is steady or declining.
Federal Reserve Chairman Ben S. Bernanke is playing up the short-term credit rescue plan as a boon to business.
“By potentially restricting future flows of credit to households and businesses, the developments in financial markets pose a significant threat to economic growth,” he said in a speech yesterday. “ … The expansion of Federal Reserve lending is helping financial firms cope with reduced access to their usual sources of funding.”
Photo by Entrepreneur.