Archive for the ‘thin air’ Category

Fed to pump another $1 trillion into U.S. economy “from thin air”

March 19, 2009

Expect elegant Ben Bernanke on Jay Leno before long.  He’s the coolest Obama spokesman on the economy — as he proved Sunday on “60 Minutes.”

But he knew about the AIG bonus money last year and he hasn’t said a word.

And four years ago, Ben Bernanke famously identified the huge influx of foreign currency as a sign that America was about to go over an economic ledge — but he didn’t understand what that might mean.

As reports:

[The] Federal Reserve chairman delivered an elegant mea culpa for pinpointing the massive capital inflows as a force lifting the U.S. economy, but failing to stop Americans from going on a destructive spending spree.

“The global imbalances were the joint responsibility of the United States and our trading partners, and although the topic was a perennial one at international conferences, we collectively did not do enough to reduce those imbalances,” the Fed chief told the Council on Foreign Relations.

Then yesterday Bernanke released $1 trillion into the U.S. economy “out of thin air.”

We haven’t created more jobs or more wealth but we do have more money now — which will usually start inflation and an economic roller coaster ride….

Before long the only financial guys getting bonuses will be Chinese….



The Federal Reserve sharply stepped up its efforts to bolster the economy on Wednesday, announcing that it would pump an extra $1 trillion into the financial system by purchasing Treasury bonds and mortgage securities.

By Edmund L. Andrews
International Herald Tribune

Having already reduced the key interest rate it controls nearly to zero, the central bank has increasingly turned to alternatives like buying securities as a way of getting more dollars into the economy, a tactic that amounts to creating vast new sums of money out of thin air. But the moves on Wednesday were its biggest yet, almost doubling all of the Fed’s measures in the last year.

The action makes the Fed a buyer of long-term government bonds rather than the short-term debt that it typically buys and sells to help control the money supply.

The idea was to encourage more economic activity by lowering interest rates, including those on home loans, and to help the financial system as it struggles under the crushing weight of bad loans and poor investments.

Investors responded with surprise and enthusiasm. The Dow Jones industrial average, which had been down about 50 points just before the announcement, jumped immediately and ended the day up almost 91 points at 7,486.58. Yields on long-term Treasury bonds dropped markedly, and analysts predicted that interest rates on fixed-rate mortgages would soon drop below 5 percent.

U.S. Federal Reserve Chairman Ben Bernanke speaks at the Council on Foreign Relations in Washington March 10, 2009.

U.S. Federal Reserve Chairman Ben Bernanke speaks at the Council on Foreign Relations in Washington March 10, 2009.  Reuters/Yuri Gripas

But there were also clear indications that the Fed was taking risks that could dilute the value of the dollar and set the stage for future inflation. Gold prices rose $26.60 an ounce, hitting $942, a sign of declining confidence in the dollar. The dollar, which had been losing value in recent weeks to the euro and the yen, dropped sharply again on Wednesday.

In its announcement, the central bank said that the United States remained in a severe recession and listed its continuing woes, from job losses and lost housing wealth to falling exports as a result of the worldwide economic slowdown.

“In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability,” the central bank said.

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