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The Vice Chairman of the Federal Reserve, Donald Kohn, said when Speaking in Nashville on April 18, that, “The Fed is only loaning to sound borrowers, and we are not taking significant credit risk that might end up being absorbed by the taxpayer. For almost all the loans made by the Federal Reserve, we look first to sound borrowers for repayment and then to underlying collateral”.

He was supported by New York Fed Bank President William Dudley, who spoke at the same conference, and said he’s “not worried at all that a doubling in the central bank’s balance sheet to $2.19 trillion will spur inflation”.

The above comments were made in response to recent warnings by several leading economists, who fear that the huge amounts of credit now being extended will soon cause serious inflation.

Former Fed Chairman Paul Volcker, who is now head of President Barack Obama’s Economic Recovery Advisory Board, said recently at Vanderbilt University, “I don’t think the political system will tolerate the degree of activity that the Federal Reserve, in conjunction with the Treasury, has taken. I think for better or for worse we are at a point where the Federal Reserve Act, after all that has been happening in the last year or more, is going to be reviewed”.

Former St. Louis Fed President William Poole, who is now a senior economic adviser to Merk Investments LLC also expressed concerns during the Nashville conference, saying, “Central bank officials are underestimating the political forces they’re going to face once the recovery starts and we are very vulnerable to an inflation explosion”.

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