Saturday, March 21, 2009

Federal Reserve Monetizes U.S. Debt While Americans Cry over AIG Bonuses. Glenn Beck

Can you say hyperinflation? We have basically just printed one trillion dollars over night, is that not crazy? I've heard the FED Chair Ben Bernanke talk about this before, about how they will start raising interest rates just as, or before the economy starts getting better so as to keep inflation under control. I would say that they are going to need some perfect timing. And like Glenn Beck said, I hope that they succeed, for all of our sakes.jbranstetter04Fed to pump nearly $1.2 trillion into the financial systemWASHINGTON — The Federal Reserve made it clear Wednesday that it will do whatever it takes to end the worst U.S. downturn since the Great Depression, announcing new plans to pump nearly $1.2 trillion into the financial system, including a historic commitment to buy up to $300 billion in longer-term Treasury securities.As part of its unexpectedly aggressive plan, the Fed also committed to hold a key interest rate essentially at zero "for an extended period" and to buy up to another $850 billion in mortgage-backed securities and debt. The actions could quickly translate into lower borrowing costs for home buyers, homeowners and businesses — and that, in turn, could help get the stalled economy moving again. The Dow Jones industrial average surged 91 points, to 7487, on news of the Fed's actions. Interest rates on Treasuries plummeted, with 10-year notes posting the biggest one-day move in nearly 50 years. The U.S. dollar sank against other currencies, however, as traders worried about the long-term implications of the policies, including possible inflation.Nevertheless, most experts applauded the Fed. "When you have a forest fire, gradualism is not a good idea," said Richard Hoey, chief economist at Dreyfus. "The aggressiveness of the Fed's action is consistent with the view that they understand the risks and have the power to act. This is not Hamlet deciding what to do."Fed actions What the Fed will do:•Buy up to $300 billion in longer-term Treasury securities during the next six months. The move, which follows similar efforts in Britain and Japan, is designed to bring down longer-term interest rates that influence business and consumer borrowing. •Buy up to another $750 billion in mortgage-backed securities issued by mortgage-finance giants Fannie Mae and Freddie Mac, which are in government conservatorship. The Fed has already committed to buy $500 billion in mortgage-backed securities, bringing planned purchases to $1.25 trillion. The Fed will also double the amount of Fannie and Freddie debt it plans to buy to $200 billion. The move is significant, given that Fannie and Freddie now back about 70% of home mortgages made in this country. About $1.4 trillion in mortgages were issued last year. •Possibly expand the range of collateral the Fed will accept under a recently launched program to spur student loan, auto, credit card, small business, commercial real estate and other lending. The Fed and Treasury Department have said that they hope to eventually spur up to $1 trillion in lending under the so-called Term Asset-Backed Loan Facility. The Fed's medicine worked almost immediately. The 10-year Treasury bond yield dropped 0.51 of a percentage point, to 2.50%, a plunge that left money managers stunned. "It's the biggest one-day move in my career, and I started in 1978," says Bob Auwaerter, bond manager at the Vanguard Group. The bellwether note's yield fell the most since 1962, according to Bloomberg News.That could prompt what analysts expect will be the biggest