Thursday, March 19, 2009

Now the government is buying its own debt

Are we out of the woods yet? I don't think so.

“In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion. Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months. The Federal Reserve has launched the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses and anticipates that the range of eligible collateral for this facility is likely to be expanded to include other financial assets.”

- Statement from the Federal Reserve board


friend2all said...

When the Fed starts to buy Treasury debt it monetizes debt and risks the long term destruction of the currency. Recent purchases by the FED of Treasury debt are short term expedient and long term ruinous.

I fear for the long term health of the great American experiment.

Charles Barton said...

What how quickly renewables get dropped from the federal recovery plan when the cut backs start coming. There is one justification for monetizing debt. That is that so much money has been destroyed during the last two years, that what have a shortage of liquidity. We have at present a consumer's strike. This has in turn lead to a vicious downward cycle in the economy. The Fed is caught between bad choices. Inflation with production is a whole lot preferable to deflation with depression.


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