Posted on 03/18/2009 8:49:33 PM PDT by TigerLikesRooster
Fed not distracted by circus over bonuses
Commentary: FOMC ramps up credit easing in face of worsening economy
By MarketWatch
Last update: 2:48 p.m. EDT March 18, 2009
WASHINGTON (MarketWatch) -- The grownups in Washington aren't about to let the latest political and media circus over ill-gotten bonuses distract them from saving this economy.
The Federal Open Market Committee acted very boldly Wednesday, promising to crank up the money supply until the economy starts breathing on its own again.
The FOMC said it would buy up to $300 billion in longer-term Treasurys over the next six months. And it said it would boost its purchases of mortgage-backed securities and agency debt, all in a bid to get credit flowing through the economy again. See full story.
All told, the FOMC committed to boost its arsenal by $1.15 trillion, doubling in one pen stroke the amount of "credit easing" it's already accomplished.
The Fed's move should lower interest rates for most borrowers, especially for homeowners and for businesses. Another wave of refinancings should help millions of homeowners lower their monthly payments.
(Excerpt) Read more at marketwatch.com ...
Ping!
I wonder if this country could survive having a debt that’s 170% of the GDP, like Japan.
The Feds are just glad the sheeples’ attention are on the bonuses, and not on them where it should be!
I thought when the Federal Reserve auctioned T-Bills they actually sold them to individuals, corporations, sovereign wealth funds, which resulted in the exchange of debt for something of value.
If the Federal Open Market Committee, which is controlled by the Federal Reserve, purchases a T-Bill do they use something other than the same notes they recently got from the mint?
Because if they do, then the only real value of this transaction is the cost of printing. Excluding the deferred tax debt our children's children now have.
Uncontrollable inflation will be the near term result.
The Federal Reserve doesn’t auction T-Bills, it’s the Treasury that conducts T-Bill auctions. The Fed buys and sells T-Bills in open market operations, much like any other other buyer and seller.
The Fed doesn’t use physical money, it uses ledger entries, computer data entries, that sort of thing. When the Fed purchases a T-Bill it credits the dollar amount of the T-Bill it purchases to whomever sold the T-Bill to the Fed.
What the Fed is doing is altering the mix of money. Dollars exist as illiquid Treasury paper, or as “high-powered money”, which is currency or checking deposits, that sort of thing. The Fed “creates money” when it purchases a T-Bill, it reduces the money supply when it sells a T-Bill.
What will determine inflation is a combination of the quantity of high powered money, and how fast that money changes hands- the “velocity of money”. Right now the velocity of money is quite low. And while the quantity of money appears to be growing dramatically, that may not be entirely accurate, as there are some strong deflationary forces at work when loans default.
When the Fed begins to detect inflation they will start selling their stock of T-Bills. When the Fed sells T-Bills it removes high powered money from the banking system in exchange for illiquid T-Bills. You’ll hear this described as “the Fed soaking up liquidity”.
Actually, the FED may well be paying attention to the AIG debacle. The writing is on the wall: Congress and the Administration are losing their ability to act and second round bailouts may be impossible politically. Congress will just keep dumping money on their constituencies. The FED looks to be pursuing other avenues to pay for the present and coming largesse. I’d prefer they’d just give all of us authority to print money on our inkjets. That way they could cut the overhead.
If the Fed’s actions were balanced the value of the dollar wouldn’t be affected over the long term. Actually the dollar has lost 97% of its value since the Fed began to “stabilize” the economy.
You are right, they are simply creating money. Thats why the value of the US $ fell about 4-5% yesterday. They are essentially just printing money.
Do you think that the bankers care about anything except their bonuses? The bonuses are what everyone is in it for. In order to fix the economy, you have to fix the participants. Mess up the economy you mess up your bonus. End of story.
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