As I write this, the Federal Reserve is in the process of purchasing $600 billion worth of US Treasury bonds. Their stated objective is to force the value of the dollar lower in order to make American goods and services more valuable on the world market. It is obvious that this is the stimulus that Barack Obama could not hope to get through Congress, even before the recent election.
There are a few points that need to be made here:
1. We should note the willingness of the Reserve to do the bidding of Obama. The concept of the Reserve being a non-political guardian of the economy should be considered naive.
2. This option, on it's face, strains credulity. The US Government wants to borrow $600 billion. The Federal Reserve prints $600 billion in worthless paper currency to purchase these bonds. In essence, the Reserve is borrowing $600 billion dollars from the money currently in the market (ie: your wallet) in order to loan this money to the State. The State, in turn, will spend the $600 billion, then will extract $600 billion plus interest from those very same wallets to pay back the Reserve for the loan.
3. It is very possible that this move by the Fed is an attempt to hide the unwillingness of the Chinese to continue to finance the US Government's spending spree. If the State places a large bond on the open market, and no one is willing to buy, financial crisis would soon follow. If this is the underlying reason for this move by the Fed, then we are much closer to disaster than most are willing to accept.
4. The stated intention, to reduce the value of American currency, will have the effect of making American goods and services less expensive around the world. What they do not mention is that this is achieved by making goods and services more expensive here at home.
And these guys are sitting around as I write this, sincerely wondering how they could have lost the election.......
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