The Federal Reserve announced today that it would buy up to $40 billion of mortgage-backed securities every month in a bid to stimulate the housing sector. The Fed will also buy more long-term US Treasuries, for total additional monthly spending of up to $85 billion - all of which is 'printed money', created out of nowhere with nothing backing it. $85 billion of new money, every month.
This means, of course, that banks which previously carried the risk of loss in the event of default on mortgages will now get their money back from the Fed - but US taxpayers, who are liable for every cent the Fed spends, will now assume that risk. Furthermore, the Fed will continue to subsidize US government spending (almost half of which is based on borrowed money). This spares politicians from having to confront in the short term the disastrous consequences of their over-expenditure.
Monty Pelerin points out that Bob Woodward's new book contains important clues as to why the Fed is behaving as it is.
No one will buy US Treasuries other than the Federal Reserve. Raising the debt limit only puts the government more hopelessly in debt, ensuring that Treasuries will be even more difficult to sell. Without intending it, Geithner admits that Bernanke will be printing money until the electricity is shut off or until hyperinflation shuts everything economic down.
There's more at the link.
Karl Denninger sums it up:
Bernanke took this action, in my opinion, in an attempt to find the last few points on the stock market because he knows, as does the rest of the FOMC, that Europe (and China, for that matter) is about to blow -- and that we're simply not making any progress economically. Therefore he felt compelled to "do something", even if the "something" is economically pointless, simply to avoid the stock market throwing a temper tantrum.
In the end the bottom line is that The Fed has shot its last bullet and it was a dud ...
Again, more at the link.
Think of it. The Fed is going to basically wave a magic wand and say 'Abracadabra!' every month, and watch as $85 billion in new currency magically appears on its computer screens. There won't be any economic activity generating that money, no assets backing it . . . it's just digits, binary ones and zeroes. The US dollar has been reduced to so much Monopoly money. Our savings and investments in that currency are being devalued by all this printed money, to the point where they'll soon be worthless.
Is it any wonder that the economic crisis grinds on and on?
Peter
This beggars belief!. What is sadly not unexpected are the decisions that impose this economic sabotage, nay - treason, upon the U.S.A.
ReplyDeleteThe Socialist Australian Federal Government is, as I've said previously, running blindly, with its Treasury arms outstreched before it, towards the mining cornucopia that it unblinkingly believes China was, is, and will continue to be.
That cornucopia is rapidly emptying, yet my Government is blind, deaf and dumb to what is so clearly raising its head over the Treasury horizon.
To our peril, now, and in my Grandchildren's future.
Thirty years ago, only a small percentage of the population had a clue on the reasons for inflation and the crippling impact it has on the economy.
ReplyDeleteNow, even local news reports are commenting on the actions of the Federal Reserve Board, which means there's a growing awareness.
Recognizing the problem is halfway to solving the problem. The solution will come.
Sadly, it's not even real money they have to print anymore.
ReplyDeleteAt least if they'd done this 50 years ago, they might have been slowed down if someone had bombed the printing presses. Today, it's just so many phosphor dots on a computer monitor somewhere.
In totally unrelated news, the US credit rating was lowered again today. Unexpectedly!
ReplyDelete