Friday, March 20, 2009
Fed Prints Trillions Of Dollars
Federal Reserve's move to print money shows perilous policy failure, from The Australian:
IT'S an ominous day when the world's economic superpower starts printing money to buy its own government's debt.
"Who's going to buy the bonds?" Paul Keating asked two weeks ago. Who would finance a US budget deficit forecast to swell to $US1.7 trillion ($2.5trillion) this year?
Now US Federal Reserve chairman Ben Bernanke has revealed part of the answer: the central bank itself will buy $US300 billion of US Treasury bonds and pay for them by electronically printing the money.
The extraordinary move immediately pushed down long-term US interest rates, which set the benchmark for mortgage rates in the nation.
The markets lapped it up, just as they welcomed the Bank of England's move early this month to buy British government bonds.
Both central banks have cut their official interest rates about as low as they can go. So now they are using "quantitative easing" - literally expanding the quantity of money sloshing around their economies.
With deflation now the big fear, the aim is to get institutions lending again. But the strategy obviously carries the enormous risk of stoking future inflation.
a) The fools in charge of fiscal policy have no understanding of economics.
b) They are crazy like foxes and simply setting the stage for a regional or global currency...
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