First off, Reducing interest rates does devalue our currency.

Secondly, and importantly: Loaning out money is how the money supply is increased in a fractional reserve banking system (or, at least one of the most important ways). While it is not the case that there is some 'Federal Reserve' printing press belching out $100 bills non-stop, what the fed is doing is the modern equivalent- perhaps not quite as inflationary- but regardless, the Fed is doing two things in this crisis:

1. Trying as hard as it can to increase the money supply by loaning out federal reserve funds, and accepting potentially worthless instruments as collateral.
2. Making our currency less valuable via interest rate drops.

Keep with me here. Lets look at the first item above more closely. The Fed discount window is there to increase or decrease the money supply and ease short term interest rates by acting as the 'ultimate' lender (IE, nobody will borrow from bank B charging 1 point higher than the fed, when they can borrow from the discount window). By accepting potentially worthless paper as collateral for the discount window loans, it is my opinion that the fed is using the discount window as a means to prop up institutions who are holding worthless paper (IE, those novel instruments that start with sub-prime home loans and by 'magic' end with an instrument that Investment banks trade as somehow solid investments). In essence, they are preventing a real re-valuation of that asset by saying they are worth a discount fed reserve loan.

So If the fed wants to get money moving in the system, then it should do what a Central Bank does in a fractional reserve system: Loan at a discount rate. But what it shouldn't be doing is helping these investment banks continue to over-value their asset sheet by lending money against assets that are dropping like flies and may be worth dog doo.

Worse, by accepting 'dog dung' as collateral- they are tying the future of the dollar to a collapsing asset. May be inflationary, certainly is bad lending.

May be inflationary, because if they are saying that these assets taken as collateral back 'new' dollars, then they are saying 'these new dollars are worth this worthless collateral'. Not good for the value of a dollar, even beyond the increase in the Money Supply, which is very inflationary.

To be truthful, I do not know if the collateral offered has been used to back new dollars. In other words- the Fed reserve must, by law, collateralize every dollar created, and only some assets (offered as collateral via the discount loan) classify as collateral. The types of assets that can be used to collateralize new dollars has expanded in recent years. While these instruments with origin in the sub-prime mess are accepted as collateral by the fed, I don't know if the fed is 'creating' collateralized dollars off of them.

So that uncertainty aside, yes, the Fed really is screwing with the money supply to prop up Investment Banks who made crappy investments, and in doing so is creating inflation. Inflation, by its very nature, causes living standards to drop more for the lower classes than the wealthy (though sure, the wealthy lose more wealth, they can still buy the necessities of life, where the poor may not be able to).

So, yeah, not printing money literally, but certainly figuratively. So I will continue saying what I'm saying:

the Fed is printing up Money and throwing it at bad banks in an effort to save the wealthy few from bad decisions and unwise risk. Capitalism is supposed to reward the successful wealthy because they take the risks and provide the capital... Not reward the unsuccessful wealthy because they took the risks and failed.

IE, if we're capitalists, lets be capitalists. If we're socialists, lets stop being socialists for the ultra wealthy and bail out the little guy (the ONLY people who will end up paying for those crappy suprimes, where this all began!)

Yeti