Ben Bernanke has gone "all in" to use a poker term. The fact that he had to announce the Fed's inflationary intentions at this meeting tells me that the wheels are coming off the economy. The Fed has just commited to providing $1.05 trillion (that do not yet exist) to purchase U.S. Treasury bonds and mortgage backed securities. In essence the Fed is "monetizing" the debt of the United States. This is historically what governments do when the burden of debt because too high. Inflation is now a sure bet, my guess is we will start to see it later this year and especially 2010. I wonder if some of this money will go toward taking China out of part of their holdings of U.S. Treasuries and Agency bonds. Hillary Clinton recently met with the Chinese government and must have heard an earful from our asian bankers.
China's President just last week said he was "worried" about his country's 'loans' to the U.S. It is possible that the Chinese told Hillary that they would begin dumping U.S. bonds on the market and Ben's plan is the way to mop it up. Just a thought early this Thursday morning.-Lou
US dollar tumbles as Fed says will buy Treasuries
NEW YORK, March 18 (Reuters) - The U.S. dollar plunged on Wednesday, hitting a two-month low against the euro, after the Federal Reserve said it will buy $300 billion of long-dated Treasuries over the next six months to boost the U.S. economy.
The euro surged above $1.34 for the first time since mid-January as analysts feared the Fed's move would flood the market with dollars and increase already large U.S. deficits.
The Fed also said it would extend mortgage-related debt purchases to help ease credit market conditions.
"Bottom line is that the Fed is adding $1 trillion to its balance sheet and that's a lot of taxpayer money," said Greg Salvaggio, vice president for trading at Tempus Consulting in Washington. "Interest rates now are effectively negative across the board. The dollar is selling off because this may contribute to long-term weakness in the currency."
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