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Fed Pumps $41B Into US Financial System

Fed Pumps $41B Into US Financial System

AP
November 1, 2007

Fed Injects $41 Billion Into US Financial System to Help Ease Credit Problems

WASHINGTON (AP) — The Federal Reserve pumped $41 billion into the U.S. financial system Thursday, the largest cash infusion since September 2001, to help companies get through a credit crunch.

The action came one day after Fed Chairman Ben Bernanke and all but one of his central bank colleagues voted to slice a key interest rate. It was the second time in six weeks that policymakers acted to protect the economy from the effects of the housing downturn and credit troubles.

Wall Street took a nosedive with the Dow Jones industrials losing 362.14 points to close at 13,567.87.

The Fed on Wednesday ordered its key rate, called the federal funds rate, to be lowered by one-quarter of a percentage point to 4.5 percent. That followed up on a half-percentage point cut in September. Those two rate reductions might be sufficient to help the economy make its way safely through trouble spots, Fed policymakers indicated.

The funds rate affects many other interest rates charged to millions of individuals and businesses and is the Fed’s most potent tool for influencing economic activity.

The Federal Reserve Bank of New York, which carries out the central bank’s open market operations, moved Thursday to inject $41 billion in temporary reserves into the financial system.

A New York Fed spokesman said it was the largest single day of operations since $50.35 billion was pumped into the system on Sept. 19, 2001, following the terrorist attacks on New York and Washington. He declined further comment.

Fed policymakers at their meeting on Wednesday noted that the “strains from financial markets have eased somewhat on balance.” In the past week, many Fed officials have described the state of financial markets as fragile.

Bernanke and other Fed officials have said it will take time for the markets to fully recover from the credit crisis.

Since August, the Fed has been pumping cash into the financial system to help ease strains from the credit crunch. It also has cut its lending rate to banks — a third such cut came on Wednesday.

 

US Mint considering cheaper coins

BBC
October 27, 2007

The rising price of copper has prompted the US government to consider making coins with cheaper metals.

The price of copper has risen to just under $8,000 a tonne, driven by demand from countries like China and India.

The US Mint says it is now costing as much as 1.7 cents to produce a “penny” (1 cent) and 10 cents to produce a “nickel” (5 cents).

Reducing the amount of metal used making these coins could save the US government around $100 million a year.

If this was extended to higher denomination coins, the savings are estimated at $400 million.

At the moment, only the US Congress has the power to change the metal composition of US coins.

The proposal by members of the US Senate and House of Representatives would give these powers to the US Treasury.

Change due

Greg Hernandez, Deputy Director of Public Affairs for the US Mint says change is on the cards:

“If the world demand continues to be high for copper, nickel and zinc, then if this legislation is approved, the metal content for the penny and the nickel will be quite different from what it is today.”

In April, the US government finally passed a law to make it illegal to melt down US coins, or export them in any quantity abroad.

Anyone doing so now faces a fine of up to $10 000, in conjunction with five years in prison.

Greg Hernandez says action was taken after the US Mint started receiving enquiries from the public as to whether it was illegal to melt down US coins.

“It was to safeguard against a potential shortage of these coins in circulation, because any wide-spread withdrawal of pennies and nickels could cause coin shortages, and that would be extremely costly to replenish, given the prevailing metal prices and production costs”

Global warning

In India, the government has had to take action after rupee coins were illegally melted down in order to make razor blades.

The Australian Royal Mint has warned its citizens it is illegal to melt down Australian dollars.

The British Royal Mint changed the composition of its one and two pence coins in 1992 from bronze (97% copper) to copper-coated steel.

It has confirmed that the value of the copper in pre-1992 one penny and two penny coins is now greater than the face value.

Royal Mint figures suggest there could be more than eight billion pre-1992 one and two pence coins still in circulation.

However, anyone trying to melt them down could face a fine or two years in prison.

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