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Home Front Economy
US Fed buys $ 1 trillion in Treasury securities
2009-03-19
The Federal Reserve says it would buy up more than 1 trillion dollars in Treasury and mortgage-backed securities to keep financial sector afloat.
Ummm? With what?
The announcement was made at the end of a two-day meeting by the Federal Open Market Committee, which kept its base lending rate in a range of zero to 0.25 percent.

The Fed, which had been expected to keep its federal funds rate unchanged, said it "anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period."

The US central bank will be printing massive amounts of money for these purchases to help foster recovery in the recession-mired economy, which shrank at a 6.2 percent pace in the last quarter of 2008.

On Wednesday, The dollar plunged over the Federal Reserve plan. The euro jumped to a two-month high of 1.3466 dollars at 1930 GMT from 1.3013 dollars late in New York on Tuesday.

Against the Japanese currency, the dollar fell to 96.03 yen from 98.61 yen on Tuesday. "The dollar's depreciation makes sense because the sharp drop in Treasury rates will reduce the relative attractiveness of US assets to foreign investors," said Jay Bryson, global economist at Wachovia Securities.
Posted by:Fred

#15  I guess with the return of Volker comes the return of inflation.

They really are setting up for a replay of 1980.
Posted by: Mike N.   2009-03-19 20:34  

#14  A few years ago Wall Street types (herein after known as 'roaches) came up with a whiz bang idea of taking toxic assets (hereinafter known as sh*t sandwiches) and after sprinkling holy water from the rating agencies and christening said sh*t sandwiches as AAA assets started selling them to gullible furners. To get the furners to buy said sandwiches, they had to eat some of them themselves. Finally the roaches exploded due to an excess of sh*t sandwiches.
Then along came Hank and Ben and Tim and Barney and ken etc and said the roaches are too big to fail and started doling taxpayers money to the roaches in exchange for the sh*t sandwiches cause the furners no longer wanted them.
As fast as the roaches got some fresh money in exchange for their sh*t sandwiches they scurried off under their rocks.
Problem is there wasn't enough clean taxpayer money to pay any more for sh*t sandwiches and furners (especially the Chicoms) weren't buying any more long term bonds and Fannie and Freddie were still hemorrhaging red, so what to do?
Problem, so many sh*t sandwiches to be offloaded and no more fools(read furners) left to eat them.
So it's got to be the last fool left, so the taxpayers will have to eat the sh*t sandwiches, so that the roaches no longer have to.
That what happened to the roaches will happen to the taxpayers is a pity, but business is business and there are no more fools left.
So thank you taxpayers for making the roaches whole again and remember, it shouldn't take more than three generations to overcome the toxins in your systems...suckers.
Posted by: tipper   2009-03-19 17:50  

#13  This is the picture that ought to be on the US $1 bill
Posted by: Anguper Hupomosing9418    2009-03-19 12:10  

#12   This will have little effect on the housing market unless & until the lax lending standards prior to 2007 (or so) are re-instituted. These were a key part of the Housing Bubble, especially the breaking of the traditional link between loan value and household income. Housing prices generally need to fall to the level of household incomes before the housing market normalizes. I don't see how this will increase consumer consumption at all.
$1 trillion is trivial compared to the ocean of derivatives still waiting to disappear into an economic bit bucket. Events have a very long way to run.
Posted by: Anguper Hupomosing9418    2009-03-19 11:58  

#11  <<<< With manufacturing capacity low, unemployment high, etc. this new money will mostly just sit for awhile. >>>>

The number of refi's will jump as the rates come down. The Fannie raising of $41bln yesterday was a massive jump and it is anticipated that will continue. As the refi's increase and the holding costs reduce this puts more money in the consumer's pocket which will feed back into the economy in terms of consumption at some point. The point is probably where the consumer thinks that the asset deflation has ended and inflation has commenced. The overhang from unemployment will continue to cause people to be conservative as well but the risk of inflation will be disconcerting for those on fixed incomes so the treasury bubble will threaten to burst at some time.

So although there may not be a lot of movement apart from refi's and maybe a pick up in auto sales and student loans via additional financing, the goal is to underwrite the consumer.

Unfortunately, of course, with the suggestion now of an end run around congress to get the healthcare and cap in trade measures through via on a 51% majority in the senate, these measure might hit the consumer just as he is coming out of the gate and smack it all down.

But look at oil, natural gas, and gold this morning. Inflation is on the way and if oil keeps on going up that will also translate to higher fuel costs.
Posted by: Omoter Speaking for Boskone7794   2009-03-19 11:41  

#10  With manufacturing capacity low, unemployment high, etc. this new money will mostly just sit for awhile.

Money seeks its own level. That's why the Fed screwed up the Dotcom bubble burst when it tried to recapitalize the market rather than accept the pain of readjustment. That infusion provided the fuel for the next series of speculations which got us to this point now. It's just more capital awaiting the next paper speculation as much as priming the overall economy. Until there is real monitoring and oversight on leverage, we're just waiting for the next wave.
Posted by: Procopius2k   2009-03-19 10:58  

#9  the dallas branch of the fed has collected a lot of time series charts on their webspace

Perhaps I'm wrong but increasing M1 and M2 during a severe banking related contraction is a new event in American finance history. With manufacturing capacity low, unemployment high, etc. this new money will mostly just sit for awhile. Of course someday when we get to the other side of the cycle we will be in new territory again.

Posted by: mhw   2009-03-19 10:24  

#8  The US Gov is printing money and screwing everybody who saves the Chicoms in the process.

fixed it.

This is a monumental error and I am surprised Larry Summers and Paul Volker signed on. The last year has been an astounding succession of bad and cowardly decisions by those who are supposed to be the responsible adults. Alexander Hamilton is definitely spinning.

Headline should have been Bogus Big Bankers Buy Billions in Bonds.
Posted by: Nimble Spemble   2009-03-19 08:10  

#7  It's certainly a real possibility, phil. And disastrous for all concerned if it comes about.
Posted by: lotp   2009-03-19 07:41  

#6  The accepted wisdom is that the USD will remain the world's reserve currency because there isn't an alternative.

I think this is wrong and we will soon reach a point where a falling USD fueled by US printing presses running hot will result in widespread dumping of USD. Fueling further falls.

A 'rush for the exit' which will happen in a matter of a few days.

However, the no alternative to the USD remains true, so we have a situation where countries have no way of holding large trade surpluses and they will consequently dissapear.

World trade will be drastically curtailed and China is in big trouble as to a lesser extent will OPEC.

I'd say with out of control deficits in the US, this scenario is almost certain in the next 6 months.
Posted by: phil_b   2009-03-19 03:29  

#5  Now watch the US$ move down. After that, watch the europeans and other exporters to the US get frustrated by their loss of competitive edge and complain that the US is getting an advantage with a falling currency. Japan will not know what to do with exports already down 45% year over year. The trade wars are beginning. See the post on Mexico.

Then as the US$ keeps falling, foreigners will want a premium over their interest rate to compensate for the falling US$. Up go interest rates to compensate.

The Fed will try and keep rates low so they will buy more treasuries printing more money.

The US$ will fall more. Inflation will pick up but the trade wars and slowing economy coupled with rising unemployment, will cause the economy to stagnate.

That's how we get stagflation..... and on and on and on
Posted by: Omoter Speaking for Boskone7794   2009-03-19 03:01  

#4  The US Gov is printing money and screwing the Chicoms in the process.
Posted by: phil_b   2009-03-19 01:19  

#3  The result:
http://zerohedge.blogspot.com/2009/03/fed-to-buy-treasuries-it-prints-to-fund.html

China answered an hour later stating the need of a trade war.
Posted by: newc   2009-03-19 01:04  

#2  I.e. The US gov just printed (virtually) up a trillion $ and gave it to themselves to give to financial sector deadbeats worldwide.
Posted by: ed   2009-03-19 00:40  

#1  A picture of an Ouroboros is needed for these stories...
Posted by: M. Murcek   2009-03-19 00:21  

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