Everything that can happen in economics has already happened. The Fed’s idea to buy commercial paper is not new (via the WSJ):
This technique was employed successfully by the Bank of England when it intervened to quell the crisis of 1825.
In the words of one Bank official at the time: “We lent it by every possible means and in modes we had never adopted before,” by buying—and lending money against—various types of securities, including Treasury bills and the equivalent of modern commercial paper.
The Bank took in securities, “in short, by every possible means consistent with the safety of the Bank, and we were not on some occasions over-nice. Seeing the dreadful state in which the public were, we rendered every assistance in our power.”
The panic of 1825 was a result of a series of monetary mistakes by the Bank of England. They deflated from 1817-1822 to get back on a semblance of a gold standard. Then they inflated from 1822-1825 and the result was a stock market bubble. They deflated in late 1825, stocks crashed and a large number of banks failed. How do we know they inflated? Commodity prices roughly doubled in the period from 1822-1825. Sound familiar? After the BOE lent freely, the crisis subsided in early 1826. The BOE continued to screw things up throughout the 1800s with various crashes and panics.
Monetary policy is at the core of our economic problems. Our current floating exchange rate scheme which has been in place since Nixon closed the gold window in 1971, has been a disaster. It is time for a new currency regime based on gold.