Actions taken by the Federal Reserve to calm financial markets and ease the housing crisis are working, a US government official claims.

“Markets appear to be gaining confidence and the availability of credit has improved modestly,” Clay Lowery, the Treasury’s assistant secretary for international affairs, told Bloomberg. More from that story:

The Fed’s interest-rate cuts and a government economic stimulus package have helped to ease market turmoil and support consumer spending, [Lowery] said.

U.S. stocks last week dropped the most since February, partly on concern the housing recession will deepen. A May 23 report showed the supply of unsold U.S. homes reached a record in April. Defaults on subprime mortgages have prompted lenders to restrict credit, while falling property values have given buyers reason to delay purchases.

Treasury Secretary Henry Paulson said last week that conditions have improved to the extent that economic forces rather than credit concerns will influence financial markets. The collapse of the U.S. subprime loan market has prompted global financial institutions to report writedowns and credit losses exceeding $370 billion since the beginning of 2007.

“Since the beginning of the credit crisis last summer, Fed policy has been purely inflationary – intended to convince people that they had more money and credit than they thought… and that they should spend it and invest it,” says Bill Bonner in The Daily Reckoning.

“But that policy can’t work forever. Eventually, consumer prices rise sharply. Then, the game is over… the Fed has to ‘lower inflation expectations’ before it can inflate again. The hocus pocus only has a positive effect, in other words, as long as people are misled… once they catch, the jig is up.”

“In just a few weeks, a third of the Fed’s entire stash of government debt, accumulated bit by bit since the Fed was first authorized by a few Congressional conspirators on Christmas Eve, 1913, has been used up by the Fed trying to paper over its own horrific mistakes,” says The Mogambo Guru. “Yikes! Ron Paul was right; we have to abolish the Federal Reserve!

“Apparently, everybody is cheered that the new official, government-determined and government-sanctioned inflation is 3.9%, which makes me laugh to think that anybody in their right mind would believe that, and then which makes me howl in anger because the damned Federal Reserve and a willing co-conspirator Congress (except Ron Paul) allowed this to happen by allowing the banks to create so much excess money and credit, so astonishingly much excess money and credit, so stupidly and criminally irresponsibly much excess money and credit, for so many months, so many years and so many decades, which doesn’t even mention the fact that throughout all the rest of human history, 3% inflation was considered to be the cut-off between ‘High’ and ‘Emergency! Emergency!’ but which is actually ignored today!”