Federal Reserve Plans to Buy Government Debt

Ah geez. Well at least we know what all the distraction tactics were about.

Shock and awe today from the Federal Reserve. The central bank surprised the financial markets, announcing it'll buy up to $300 billion in longer-term Treasuries over the next six months. This is the first time in more than 40 years the Fed has purchased government debt. As the Fed wrapped up its two-day policy meeting, it also said it will purchase an additional $750 billion of mortgage-backed securities. Add it all up. The Fed is pumping more than $1 trillion into the economy. It hopes this cash injection will boost the economy, making more money available to consumers and businesses. Scott Gurvey reports on the central bank's big gamble.

Click to expand...

Nightly Business Report . Federal Reserve Plans To Buy Government Debt | PBS

WASHINGTON (Reuters) – The U.S. Federal Reserve on Wednesday, in a surprise move, said it will buy up to $300 billion worth of longer-term U.S. government debt over the next six months and expand purchases of mortgage-related debt to help ease credit market conditions.

In a statement at the end of a two-day meeting, the central bank's policy panel also said it had decided to hold its target for overnight interest rates in a zero to 0.25 percent range -- the level reached in December.

It said rates would stay low for "an extended period," a more explicit vow to stay on hold for a prolonged time.

"In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability," the Fed said.

Click to expand...

Fed to buy long-term U.S. government debt

I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.
Thomas Jefferson, (Attributed)
3rd president of US (1743 - 1826)





Fed to buy long-term U.S. government debt

IT'S an ominous day when the world's economic superpower starts printing money to buy its own government's debt.

Click to expand...

Federal Reserve's move to print money shows perilous policy failure | The Australian

the United States will buy its own bonds, through the offices of the Federal Reserve.

Click to expand...

The Fed is not literally printing money for the economy with this move. It is initially a book entry, as the Fed credits the accounts of the banks it buys bonds from. But in the long run the Fed is creating money, and the threat, exposed in Germany after World War I and more recently in Robert Mugabe's Zimbabwe, is a breakout of inflation.

Click to expand...

US clutches at bond buy-up in effort to rescue economy

It's good to know that all of Congress right now is working on flogging AIG employees. :roll:

Gold rallies as dollar tumbles after Fed's decision
By Moming Zhou & Laura Mandaro, MarketWatch
Last update: 4:05 p.m. EDT March 18, 2009
Comments: 656
NEW YORK (MarketWatch) -- Gold futures rallied more than 6% in electronic trading Wednesday, as the dollar tumbled after the Federal Reserve surprised investors and said it will buy long-term Treasurys, raising gold's appeal as an investment alternative.
By buying Treasurys, the Fed is essentially creating more money to buy national debt, which weighs on the dollar. The rally in gold came after the metal lost 3% to end at a two-month low in floor trading, which ended before the Fed's announcement.

Click to expand...

http://www.marketwatch.com/news/story/Gold-rallies-6-dollar-tumbles/story.aspx?guid={2D07948D-5835-4E62-A9F2-249D7504917B}

US Federal Reserve cranks up printing press

The Federal Reserve last night flashed back almost 50 years to a campaign code-named "Operation Twist", as it announced the purchase of longer-dated Treasury securities to help end a deepening US recession.

In a decisive escalation in its campaign to restore growth, the Fed said it would buy up to $US300 billion ($440 billion) of longer-dated Treasuries over the next six months and buy another $US850 billion of mortgage securities.

Economists said the bold move was warranted by a worsening economic outlook, but also carried the risk of inflation in the future, unless the Fed was very careful.

Click to expand...

US Federal Reserve cranks up printing press - Business - BrisbaneTimes

This is big news. How come no one is interested in it?

Stocks are rallying, bonds are soaring, and your mortgage rate could fall again now that the Federal Reserve has agreed to take on billions worth of new Treasuries and other securities to support the ailing economy.

Don't be fooled: The Fed's decision is a reason to worry.

The decision today to buy $300 billion worth of long-term Treasuries over the next six months and expand existing lending programs by another $750 billion is actually a little scary. Precisely this sort of action was long considered a last-resort arrow in the Fed's quiver. But as the Fed said in its statement, the economy has continued to contract since January. With interest rates close to zero and available options dwindling, the Fed's move simply shows central bankers think the crisis is continuing.

Click to expand...

Fed's Bond Buy Signals Crisis - The Ticker (usnews.com)

With mortgage rates already hovering at record lows, the Federal Reserve on Wednesday moved to force them still lower with a dramatic $1.2 trillion expansion of its debt-buying programs.

The central bank said it would start buying up to $300 billion in Treasury bonds as well as another $850 billion in mortgage bonds from Fannie Mae and Freddie Mac - a move sure to drive 30-year rates of less than 5 percent still lower.

Although the move was an elixir for the economy and markets, it risked stirring controversy because the central bank has essentially started printing money to help finance federal deficits exceeding $1 trillion this year and next.

Click to expand...

Washington Times - Mortgage rates: How low can they go?

Exactly. It should stir controversy. Why isn't it? How can people care more about AIG or the pope and condoms than this?

While I'm not one to be an alarmist, I can't help but wondering if complete financial collapse is inevitable. Everything the government does has the air of either a pyramid scheme, a college freshman about to be burried by a growing mountain of credit card debt, or outright fraud. It just doesn't seem possible that a financial system that operates in this way can sustain itself. When the traditional methods of creating money out of thin air aren't enough anymore that should be a hint that you're doing something incredibly, incredibly stupid. I can easily see the 'moronic assumption of the day' going from 'housing prices always go up' to 'the US governemnt can always issue more debt.' It's a stupid assumption, but it's one that we are currently making, and if it ever becomes false we're in for a hell of a ride

My biggest concern is that the people are so easily distracted. This move by the fed was big, bold, and incredibly risky. Folks should be talking about it but they're not. We're frighteningly stupid as a population. We have a ton of threads on AIG and not a peep on this which is far more monumental, worthy of debate, and absolutely deserving of discussion. It's mind boggling.

yikes

Yes, this is pretty big news, and I'm not sure why it's not caused more of an upset.

It is this policy move that has pushed stocks higher (today is a profit taking sell off), while weakening the dollar, and pushing almost all commodities and their industry reliant firms up.

Part of the problem is the ultra strong dollar, which has made our businesses less competitive on a global scale. This is a move to reflate the deflated economy, the only true question is whether the Fed will be able to move MBS's off their balance sheet.

Also, this puts significant pressure on China, and other highly dollar denominated investors to purchase treasury securities in an effort to hedge against the short term erosion of their reserves.

Khayembii Communique said:

Yes, this is pretty big news, and I'm not sure why it's not caused more of an upset.

Click to expand...

I think it's because people don't understand the federal reserve. I don't understand the federal reserve. I don't understand their nature of being private but also controlling the economy, printing money, and basically telling congress how things are gonna go down. I don't really understand who owns the federal reserve. I know it's shareholders are other banks but are there actually people who profit off the federal reserve? Clearly with it's power to manipulate the markets I'm sure there are individuals profiting. Their power seems too big with too little oversight.

But just because we don't understand the federal reserve I think it's very unwise to just ignore everything they do. If they can "rescue" us from a financial crisis then they must also be able to "cause" a crisis. Right? There are lots of conspiracies about the federal reserve and you can get basically as crazy as you want with all that; but I really believe most - like myself- have very little understand of how the federal reserve works, who pulls the strings, why congress seems to take orders rather than give them, and which individuals benefit by what the federal reserve does.

I know Ron Paul hates the federal reserve. :mrgreen:

I'm not sure how to feel about the conspiracy theories but I do think they operate virtually unchecked, manipulating our economy with everything they do.

The fact that they do this and somehow manage to do it without the majority of folks talking about their actions is quite a feat. The fact that this story isn't the lead on every radio news broadcast and big deal tv news is eerie.

Why are we allowing banks and wall street to run our government; no questions asked?

Goldenboy219 said:

It is this policy move that has pushed stocks higher (today is a profit taking sell off), while weakening the dollar, and pushing almost all commodities and their industry reliant firms up.

Part of the problem is the ultra strong dollar, which has made our businesses less competitive on a global scale. This is a move to reflate the deflated economy, the only true question is whether the Fed will be able to move MBS's off their balance sheet.

Also, this puts significant pressure on China, and other highly dollar denominated investors to purchase treasury securities in an effort to hedge against the short term erosion of their reserves.

Click to expand...

I can't blame the Chinese for being concerned. It looks to me like we're trying to screw them.

Goldenboy219 said:

It is this policy move that has pushed stocks higher (today is a profit taking sell off), while weakening the dollar, and pushing almost all commodities and their industry reliant firms up.

Part of the problem is the ultra strong dollar, which has made our businesses less competitive on a global scale. This is a move to reflate the deflated economy, the only true question is whether the Fed will be able to move MBS's off their balance sheet.

Also, this puts significant pressure on China, and other highly dollar denominated investors to purchase treasury securities in an effort to hedge against the short term erosion of their reserves.

Click to expand...

But explain to me where the money comes from. How do they say they are going to buy our government debt, but then do so by printing money? Why do they have the authority to print money? If the federal reserve is private, and our government is indebted to them because they bought our debt, don't they have to use their own money to buy the debt? I don't get the whole, "We'll buy the debt, we'll start printing the money up now.":shock:

Can anyone explain that? I've tried to figure it all out with googling but still haven't a clue.

talloulou said:

I think it's because people don't understand the federal reserve. I don't understand the federal reserve. I don't understand their nature of being private but also controlling the economy, printing money, and basically telling congress how things are gonna go down. I don't really understand who owns the federal reserve. I know it's shareholders are other banks but are there actually people who profit off the federal reserve? Clearly with it's power to manipulate the markets I'm sure there are individuals profiting. Their power seems too big with too little oversight.

Click to expand...

Yes, the Fed does provide profits for shareholders.

But just because we don't understand the federal reserve I think it's very unwise to just ignore everything they do. If they can "rescue" us from a financial crisis then they must also be able to "cause" a crisis. Right? There are lots of conspiracies about the federal reserve and you can get basically as crazy as you want with all that; but I really believe most - like myself- have very little understand of how the federal reserve works, who pulls the strings, why congress seems to take orders rather than give them, and which individuals benefit by what the federal reserve does.

Click to expand...

Yes, but it is counter productive for the FRB to enact policy that would be harmful (in the long run) to their balance sheet, and thereby association, the US economy itself.

I know Ron Paul hates the federal reserve. :mrgreen:

Click to expand...

I really do not care for them either, but regardless of my partisan sentiment, they are a big player in the markets (for better or worse) and we now are dependent on them to guide the economy (for the time being). Deflation is much nastier than inflation; hyperinflation cannot exist in the US unless they begin buying $10's of trillions of assets in a short time.

I'm not sure how to feel about the conspiracy theories but I do think they operate virtually unchecked, manipulating our economy with everything they do.

Click to expand...

It does allieve them of political control. Congress does not know how to guide an economy.

The fact that they do this and somehow manage to do it without the majority of folks talking about their actions is quite a feat. The fact that this story isn't the lead on every radio news broadcast and big deal tv news show is eerie.

Why are we allowing banks and wall street to run our government; no questions asked.

Click to expand...

They are not running our government, they are instead prevailing over the economy as they have since 1913. One of the major reasons 1930's depression became so horrendous is the fact that asset loss persisted due to the lack of sheer liquidity in the market. Asset loss is facilitated through deflationary spirals, and the US was heading in that direction as of 1 week ago.

To be honest, i am actually surprised they had the balls to go all in at this stage. I have to applaud Bernanke, as he fuels up his fleet of helicopters ready to dump liquidity at any and all costs.

Does the fed own "money" but not have it all printed up or something? Like I own money but don't go to the ATM for cash unless I need it; leaving most of my transactions electronic?

Or can the fed literally create money out of nothing?

Is all the money backed up by something real - I guess is my main question.

talloulou said:

But explain to me where the money comes from. How do they say they are going to buy our government debt, but then do so by printing money? Why do they have the authority to print money? If the federal reserve is private, and our government is indebted to them because they bought our debt, don't they have to use their own money to buy the debt? I don't get the whole, "We'll buy the debt, we'll start printing the money up now.":shock:

Click to expand...

LOL, their money is the bank note you have in your pocket, as our money is given to us by the Federal Reserve. They control the amount of dollars in the system. Theoretically, they have infinite dollars to buy assets (pump money into the economy) and can sell them (pull money out) when they see prices beginning to jump.

Can anyone explain that? I've tried to figure it all out with googling but still haven't a clue.

Click to expand...

I can answer more question in about an hour and a half.

talloulou said:

Does the fed own "money" but not have it all printed up or something? Like I own money but don't go to the ATM for cash unless I need it; leaving most of my transactions electronic?

Or can the fed literally create money out of nothing?

Is all the money backed up by something real - I guess is my main question.

Click to expand...

No. It's backed up soley by the laws of supply and demand.

talloulou said:

But explain to me where the money comes from. How do they say they are going to buy our government debt, but then do so by printing money? Why do they have the authority to print money? If the federal reserve is private, and our government is indebted to them because they bought our debt, don't they have to use their own money to buy the debt? I don't get the whole, "We'll buy the debt, we'll start printing the money up now.":shock:

Can anyone explain that? I've tried to figure it all out with googling but still haven't a clue.

Click to expand...

The fed doesn't print money the Treasury does what the fed does is manage the money supply.

BulletWounD said:

No. It's backed up soley by the laws of supply and demand.

Click to expand...

Well, the purchasing power of the said note.

Goldenboy219 said:

Yes, but it is counter productive for the FRB to enact policy that would be harmful (in the long run) to their balance sheet, and thereby association, the US economy itself.

Click to expand...

This is true if all the share holders, profiteers, etc are American. But maybe not so much if they're foreign, right?

I really do not care for them either, but regardless of my partisan sentiment, they are a big player in the markets (for better or worse) and we now are dependent on them to guide the economy (for the time being). Deflation is much nastier than inflation; hyperinflation cannot exist in the US unless they begin buying $10's of trillions of assets in a short time.

Click to expand...

I just think their power is perhaps too big and unchecked. If they can "fix" the economy they can also purposely "break" the economy if there was some incentive to do so. If there is no foreign interests or shareholders tied to the federal reserve then there's not as much reason to worry, but do we know if there are foreign interests involved?

It does allieve them of political control. Congress does not know how to guide an economy.

Click to expand...

Maybe not but it's dangerous to just "take orders," and allow a virtually private bank to own our government debt.

To be honest, i am actually surprised they had the balls to go all in at this stage. I have to applaud Bernanke, as he fuels up his fleet of helicopters ready to dump liquidity at any and all costs.

Click to expand...

It seems like all the financial folks are surprised which is why it's worrisome.

This is why running of huge deficits unless its absolutely required should never happen. We shouldn't have been going into a crisis with debt. Barring a crisis like this or WW3, there is no excuse not to at least have a balanced budget. This is a where decades of deficit spending leads us.

rathi said:

This is why running of huge deficits unless its absolutely required should never happen. We shouldn't have been going into a crisis with debt. Barring a crisis like this or WW3, there is no excuse not to at least have a balanced budget. This is a where decades of deficit spending leads us.

Click to expand...

Don't forget, DEBT IS WEALTH.

rathi said:

This is why running of huge deficits unless its absolutely required should never happen. We shouldn't have been going into a crisis with debt. Barring a crisis like this or WW3, there is no excuse not to at least have a balanced budget. This is a where decades of deficit spending leads us.

Click to expand...

Right.

Why would we sell our government debt to the fed reserve? If we're in debt then we're in debt. So the feds buy some of the debt and do they give the money to our government? Then the government presumably uses the money to pay off debt?

How does the fed buying government debt flood the economy with money?