Fed to Buy U.S. Debt, Saying Recovery Has Slowed

The New York Times ^ | August 10, 2010 | The New York Times

[John W]

Acknowledging that the recovery has slowed, the Federal Reserve announced Tuesday that it would use the proceeds from its huge mortgage-bond portfolio to buy long-term Treasury securities, The New York Times’s Sewell Chan reports from Washington.

By buying government debt, the Fed is taking an unmistakable step to maintain the large amount of money that it pumped into the economy, starting in 2007, to prop up the financial and housing markets.

[ichabod1]

Oh no its not. The merry go round only goes on until nobody wants US debt any more. Then the music stops and whoever doesn’t have a chair... is out.

[Gilbo_3]

weimar ping...

[henkster]

This is playing a game of Monopoly with a laser printer.

[evad]

“Printing Money” is a loosely used term that is not always meant to be taken literally....although in the case of this administration, anything is possible and probable.

[dools007]

How can this be interpreted as anything but an admission of failure? I don’t like the idea of make believe public money paying for teacher, civil servant (that’s a joke) and policemen’s salaries. But I don’t believe it produces one more voter for the demrats. I do believe it confirms what most voters have already concluded: The Marxist Onada regime is all about its political agenda and to heck with America.

[atomicweeder]

Exactly!

In theory, it sort of makes sense. Use the profits from the mortgage portfolios to buy Treasuries (i.e reinvest).

In practice, it's a fools errand. Since Fannie Mae and Freddie Mac just asked for another bailout, their portfolios are not profitable. They are not performing.

It's like you or me buying a small store-front business to use the profits to pay off our personal debts, even though we know that the store-front business is losing $5,000 a month.

[atomicweeder]

I believe that in 1920's Germany that if you tried to buy toilet paper with paper money, you ended up with fewer # of sheets of paper.

Better to wipe your a$$ with the money.

[Pining_4_TX]

So what is going to happen? A massive deflation leading to depression or hyperinflation? Or are we going to have one, then the other. Should folks take retirement money out of investments and stuff the mattress with it or what?

[rlmorel]

I feel as though every day, I am just going through the work routine, eating my three square meals a day and showering under hot water, just doing it as long as I can before the collapse occurs.

Buying our own debt? BUYING OUR OWN DEBT?

It seems like our nation (perhaps the world) is sleepwalking towards a cliff. The sun is still shining, we are still breathing, life is still going on, and I get the impression anyone with a brain is just looking away from what we know is ahead.

This article just scared the crap out of me. Before I hit the post button, I went back one more time to be sure it wasn’t satire.

It wasn’t.

[pieceofthepuzzle]

“Nobody is this stupid.”

But plenty of people are this ideological. Geithner and friends truly believe the Keynesian crap they've been spewing. Obama truly believes the socialist/Marxist drivel he's been pushing.

[rlmorel]

Wow. But, didn’t they do it by selling bonds (as much as they could)?

[politicket]

So what is going to happen? A massive deflation leading to depression or hyperinflation? Or are we going to have one, then the other. Should folks take retirement money out of investments and stuff the mattress with it or what?

It's my opinion that we're already in a depression that is being disguised by the Federal government creating massive amounts of new debt to counteract all of the debt being destroyed.

Destruction of debt sounds like a good thing, until you realize that it is also equal to a destruction of the overall money supply.

There won't by a hyperinflationary period after the deflation, but we will definitely see a rise in inflation that could rival the Jimmy Carter years. I expect that a major international war will most likely occur also in order to help drive the inflation.

My opinion is that cash on hand is the best place to be. Please don't make financial decisions based on my opinion. Pray about it and get lots of good, sound advice.

[DaxtonBrown]

When I’m feeling sad
I take money from my left pocket
And put it into my right pocket
And that makes me glad!

[EGPWS]

I take money from my left pocket And put it into my right pocket

It's easier than digging a hole and then filling it in again and paying yourself for the work.

[huldah1776]

Maybe they’re using the $100 bills floating around that look so perfect even the feds can’t tell them apart.

[GourmetDan]

"Usually, but not in this case. They're reinvesting payments they receive, not creating new money."

The poster did not appear to understand how the Federal Reserves works. Here are the accounting entries as they would work on the books of the Fed.

1. Create Fiat = Debit Cash, Credit Equity

('Cash' on the books of the Fed is not in circulation but can be used to 'buy' debt or assets (homes, land, etc) as authorized. As we have seen, the Congress will 'authorize' any number of 'assets' for the Fed to 'buy' to avoid deflation. Charter 'restrictions' on the Fed mean nothing and can easily be changed. BTW, you or I would get tossed in jail if we made accounting entries like this. The Fed is 'special'.)

2. Buy Notes/Assets = Credit Cash, Debit Investment

(Place Cash into circulation.)

3. Receive Payment = Debit Cash, Credit Investment

(Again, cash on the books of the Fed is not in circulation and has been removed from the economy.)

4. Close Original Entry = Credit Cash, Debit Equity

(Reverse original entry 'destroying' cash.)

Lather, rinse, repeat...

The Federal Reserve is creating 'money' out of thin-air any time they buy debt or assets of any kind. Fiat on the books of the Fed is not in circulation. Receiving cash for debt they purchased with cash they created out of thin-air simply reverses the original cash-creating entry and the 'money' disappears from the economy. This is why a fiat currency must have a continually-increasing debt-load for the economy to 'grow'. Fiat has no intrinsic value. It's 'value' is psychological.

[Toddsterpatriot]

The Federal Reserve is creating 'money' out of thin-air any time they buy debt or assets of any kind.

Not when they roll over maturing debt. Or, in this case, reinvest principal and interest received on MBS.

[dr_who]

One big, never-ending shell game. That’s all it is.

[DaxtonBrown]

[It’s easier than digging a hole and then filling it in again and paying yourself for the work. ]

La la la la, la la la la!
Don’t put thoughts into my head evil person!

[wendy1946]

The money and banking system which was set up under Wilson along with the income tax to pay interest on federal debt while rolling principle over in eternity has carried us as far as it can. There IS a way out, but it will require jetissoning the present money system which is based on federal debt and fractional reserve banking.