Economic Prosperity vs. Deficit Spending

The American Thinker ^ | April 16, 2009 | Tom Suhadolnik

[Scanian]

On April 14th, the US Federal Reserve continued on a path that was almost unthinkable as little as six months ago.

The Federal Reserve Bank of New York bought $7.3 billion in US Treasuries on Tuesday, part of a program to improve conditions in private credit markets and spur lending. The debt bought included notes maturing between 2013 and 2016. Dealers submitted $26.4 billion in debt to be purchased. The Fed will continue its buybacks with a third operation this week, heading towards purchasing $300 billion in Treasury securities over the next six months.

To put this in perspective, $300 billion is larger than the annual entire federal deficit for the years 2005 to 2008 (before TARP). The Federal Reserve is essentially printing this money.

Foreign central banks, particularly the Chinese, have lost their appetite for US debt. They have also publically raised concerns about the drastic increase in US debt over the last six months and America's ability to repay it.

Although seemingly absurd, this move by the Fed will in fact help private credit markets in the short term. Since the Chinese have stopped buying US debt, the Treasury would have to attract new buyers by offering higher interest rates. These higher interest rates would take money out of the private credit markets. By buying this debt at an artificially low interest rate the Fed is helping the private sector.

Normally this would be highly inflationary.

[RSmithOpt]

The Feds buying back US debt while deficit spending has made a quantum leap, simply is will destruction of the value of the US dollar.

It has to be nothing except willful manipulation of 'funds' to protect the greedy over leveraged megabanks to intentionally destroy the US economy in the process.

All stories hinting at an economic recovery is pure BS at this time.

[RSmithOpt]

will=willful

[allmost]

To put this in perspective, $300 billion is larger than the annual entire federal deficit for the years 2005 to 2008 (before TARP). The Federal Reserve is essentially printing this money. Foreign central banks, particularly the Chinese, have lost their appetite for US debt.

Never to be out done on a paper scam, the fed aims to put the CDS fiasco to shame.

[Brilliant]

Ultimately, this massive deficit spending is going to result either in high interest rates or inflation.

[CaptainMorgantown]

Lock into a low rate long-term mortgage while you can. I feel sorry for the conservative local banks, because they are being pressured to offer ridiculously low long-term fixed rate mortgages while the federal government is pursuing policies that will practically guarantee a period of high inflation.

[Brilliant]

I paid mine off. No sense in taking risks in this economy.