Federal Reserve to Purchase $600 Billion in Bonds as a Hedge Against Inflation

(The Christian Science Monitor) According to the "Christian Science Monitor", the Federal Reserve is trying to take out an insurance policy against the risk of deflation and a return to recession.  The price tag for that insurance is $600 billion.  The Fed said last Wednesday that it will spend over the next eight months to purchase US Treasury bonds.  The idea is to pump new money into a weak economy, boosting both economic growth and inflation.  Many economists expect the new policy to have a modestly positive effect on the economy, but critics say it will spark an unwelcome level of inflation without creating jobs.  Reaction in the stock and bond markets Wednesday afternoon was muted, because the Fed has telegraphed its move in public statements over the past few weeks. 

The central bank's policymaking committee, led by Fed Chairman Ben Bernanke, voted 10-to-1 to take new action.  The bank's mandate from Congress is to seek both full employment and a stable overall price level, and the Fed said that "progress towards its objectives has been disappointingly slow."  In its statement, the Fed's policy committee said it plans to purchase about $75 billion of long-term Treasury securities per month.  The goal is "to promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate."  The Fed's monthly purchase amounts are relatively modest, not a policy of shock and awe.  The downside, for ordinary Americans, is that the policy may not provide a huge boost to growth.  On the positive side, the move's modest scale shields the economy somewhat from the inflation risks that critics see in the plan. 

Economists at the investment bank Morgan Stanley, in a note to clients Wednesday, cited several channels by which the Fed's policy may help lift growth.  The Fed begins by using its power to create money, and using it to purchase bonds.  Pumping new money into the economy can push up the price of assets (such as corporate stocks), lower the dollar's exchange rate (making US exports more attractive), and raise inflation expectations (thus reducing real interest rates).  Potentially, the asset-purchase policy could also help to revive bank lending by expanding the nation's money supply.  The risk is that it could stir up inflationary pressures, or leave the Fed with a difficult juggling act when the time comes to reduce the size of its balance sheet by selling bonds.  By printing more money, the Fed could work against its own goal of boosting the economy, critics warn.  Inflation and expectations of future inflation could push up long-term interest rates, they say.  Another risk is that the influx of monetary stimulus could fuel an asset-price bubble--with unhappy consequences when it bursts.  Currently, a declining dollar and low US interest rates are pushing investors toward assets in emerging-market nations. 

One of the biggest threats to our economy in the United States is the Federal Reserve.  The Federal Reserve is a consortium of international bankers.  They are the ones that establish our monetary policy.  It's unconstitutional.  Congress is the one that's charged with coining and regulating our currency.  We have a group of bankers that have no loyalty whatsoever to the United States making monetary policy.  The Fed sets interest rates on our currency.  It's a menace to the American society.  Nobody in Congress nor the President have the political will to walk away from the Federal Reserve.  Texas Congressman Ron Paul calls for an audit of the Federal Reserve, but we need to disengage ourselves from the Fed.  They are ruining the value of the dollar by continuously printing new money.  Our dollar is no longer backed by gold nor silver.  The Fed creates money out of fiat.  If Congress doesn't rein in spending and depart from the Fed, the future doesn't bode well for the United States.  At the trend we're going, we're going in the direction of the Weimar Republic during the 1930's when hyperinflation set in.  Customers would have to take wheelbarrows of money to purchase anything because prices were continually rising.  Congress must take control once again of our monetary system.