Ben Bernanke is indeed a man of his words. He not only stepped into a helicopter to drop money, he virtually flew a B-52 bomber and carpet bombed the skittish financial system with a trillion dollar payload.

The Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion. Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months.

In a single day, this “shock and awe” maneuver ramped up Treasury prices while driving down corresponding yields. The US dollar tumbled while gold spiked to $958, an impressive run considering its last traded price of $882 on Wednesday. Crude oil also rallied above $50 per barrel. Bonds and equities market also enjoyed a brisk rally. However, I remain tentative of any sustainable momentum to turn around the major downtrend in stock markets. US economic conditions are not encouraging with the leading indicator index falling 0.4% and the number of Americans collecting unemployment benefits surging to a record. The US recession is deepening and when the US is in the doldrums, the rest of the world suffers. IMF confirmed this view on Thursday with a grim warning: “The world economy is set to contract for the first time in 60 years, as the deepening financial crisis would lead to the global GDP shrinking by up to 1 per cent in 2009.” Read more...