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The Federal Reserve is buying $600 million in government bonds in hopes of juicing up the economy. And it said Nov. 3 it will “invest” as much as $300 billion more from proceeds of its portfolio in Treasury securities. The plan is to have a touch of inflation to get Americans to spend instead of save. But the Fed is taking a risk that could well lead to racing inflation.
This game of high finance is called quantitative easing, This is QE2. It was tried before—QE1—and it didn’t work then. Many economists believe the Fed is out of control in announcing another quantitative easing. They maintain that the Fed is putting the future of the U.S.dollar at risk, and maybe even the stability of the global financial system.
Fed Chief Ben Bernanke is a bit like the miller’s daughter in the tale Rumpelstiltskin, who was trying to spin gold out of straw.
Bernanke’s game also obscures the fact that money is being printed out of thin air, then used to buy government debt. The Fed is monetizing U.S. Treasury debt through its commitment to buy Treasuries and doing so by a slight-of-hand maneuver, some financial wizards say.
A rush into commodities occurs when the public believes our dollar’s worth is shrinking. The Fed’s latest quantitative easing is already triggering a flood of liquidity into riskier assets, particularly commodities. The AP reported Nov. 4 that gold set a new record high and “other commodities chalked up broad gains as investors sought protection against inflation.”
Fed Chairman Bernanke seems enchanted by the faulty Keynesian philosophy described in John Maynard Keynes 1930s book, “The General Theory.” In sum, Keynes said his antidote for slow economic growth and high unemployment was massive doses of government spending. The Fed’s monetary policy has the same effect as the Obama Administration’s failed fiscal policy of spend, spend, spend.
Increasing the money supply on the scale as if it were dropping money from a helicopter earned Ben Bernanke the nickname “Helicopter” Bernanke.
The Fed announced Nov. 3 that it would purchase the billions in government bonds in a daring scheme it hopes to prompt people to spend more money and to stimulate hiring and rev up economic growth, the Associated Press and other media reported. The Fed’s plan is to buy at the rate of about $75 billion a month.
Although the Fed announcement helped push U.S. stocks to their highest close of the year—and election results probably helped—not all financial experts were smiling. Some worried that the amount was not big enough. Others fretted that it signaled inflation ahead.
The Fed and most policymakers expect employment to improve gradually “progress towards its objectives has been disappointingly slow,” the Fed said in a statement after its two-day meeting, ending Nov. 3.
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