The Fed will buy $600 Billion in Long-Term Bonds to stimulate the economy [Archive]

View Full Version : The Fed will buy $600 Billion in Long-Term Bonds to stimulate the economy

Va Beach VH Fan

11-03-2010, 06:37 PM

I freely admit, I don't fully understand the implications of this, but the premise at least sounds OK: Fed buys long-term bonds from Banks, Banks get much needed $$$ for loans, etc, to stimulate the economy....

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http://money.cnn.com/2010/11/03/news/economy/fed_decision/index.htm?hpt=T1

NEW YORK (CNNMoney.com) -- In its latest move to jump start the sluggish recovery, the Federal Reserve announced it will pump billions into the economy.

The central bank will buy $600 billion in long-term Treasuries over the next eight months, the Fed said Wednesday. The Fed also announced it will reinvest an additional $250 billion to $300 billion in Treasuries with the proceeds of its earlier investments.

The bond purchases aimed at stimulating the economy -- a policy known as quantitative easing -- will total up to $900 billion and be completed by the end of the third quarter of 2011.

Ever since the Fed first signaled back in August that it was considering a second round of monetary stimulus, dubbed QE2, investors have been preoccupied with speculating on how much the Fed would buy.

Now the verdict is in, and is roughly in line with forecasts. Mainstream estimates had predicted a total between $500 billion and $1 trillion.

"It was all largely as expected," said Calvin Sullivan, chief strategy officer at Morgan Keegan. "The markets are responding as one would expect."

Stocks seesawed between gains and losses, as investors digested the news. The real surprise was in the bond market, where yields on the longer term 10-year and 30-year rose, after traders realized the Fed's plan called for 91% of its purchases at shorter maturities than expected.

Read the Fed statement
The Fed also reiterated its bearish view on the stalling economy, saying "the pace of recovery in output and employment continues to be slow."

Amid sluggish consumer spending, businesses have been reluctant to hire and the economy has grown at a snail's pace. At the same time, inflation is dangerously low, causing some economists to warn that the United States may even be flirting with deflation -- a debilitating drop-off in prices and demand.

The Fed has already kept the federal funds rate, a benchmark for interest rates on a variety of consumer and business loans, at historic lows near zero since December 2008. The Fed said Wednesday that it would continue to hold the rate at "exceptionally low levels" for an "extended period."

The federal funds rate is the central bank's key tool to spur the economy and a low rate is thought to encourage spending by making it cheaper to borrow money.

When already low rates failed to get consumers and businesses to spend, the Fed decided to resort to the more unconventional tool of quantitative easing, to lower interest rates even further.

But critics of QE2, including some Fed members, believe that too much monetary stimulus might lead to runaway inflation that could derail the economy, or future asset bubbles that could endanger economic stability over the long term.

The most outspoken voting member of the Fed, Kansas City Fed President Thomas Hoenig, was once again the lone dissent among policymakers, saying he believed the risks of additional securities purchases outweighed the benefits.

Other opponents have argued that it simply won't work. The Fed already made nearly $2 trillion in similar purchases during the Great Recession, and current low interest rates have not jolted spending, they say.

"I don't think this is going to make any difference at all," said Paul Ashworth, senior U.S. economist with Capitol Economics, who feels the plan is too small. "This is a slippery slope. Once you're on it, it's very hard to get off."

He predicts a repeat of what happened with the first round of quantitative easing two years ago. The Fed initially announced a $600 billion program in November 2008, but then four months later, increased that to $1.8 trillion, when it wasn't enough.

GAR

11-03-2010, 07:51 PM

It's called "printing money" and if nobody buys it because the Fed is nearly at junk-bond status, we're fucked.

We need to raise the interest rate, and cut spending right away and nobody's got the balls to do it.

Nitro Express

11-03-2010, 10:07 PM

They must think we are stupid. They print $600 billion out of thin air and lend it to themselves and pay themselves back with interest. The excuse is to lower interest rates but they are down to nothing anyways. What's next? negative interest where you pay the bank to keep your money?

They get away with this shit because the average person is dumb as a post and still wants dollars thinking they are worth something and as long as people are that dumb, they can get away with it for a while longer.

PETE'S BROTHER

11-03-2010, 10:12 PM

i'm gonna stop payin' my mortgages and put it all in gold:(

PETE'S BROTHER

11-03-2010, 10:13 PM

and rounds and shells

and beer

and weed

and van halen tickets!

Nitro Express

11-03-2010, 10:20 PM

We need to get rid of the Fed. It's broke anyways. If the US Treasury department started issuing gold and silver certificates those would sell like hot cakes. This fractional reserve banking concept is nothing more than a ponzi scheme.

PETE'S BROTHER

11-03-2010, 10:29 PM

disolve the fed and where would all the money go/come from? not being antagonistic, just naive/stoned

Satan

11-03-2010, 11:50 PM

I'm going to start printing my own money and call it "Infernal Reserve Notes".

http://www.luckymojo.com/hellmoney10,000.gif

Why not, all the wealth of this world is really mine anyway. http://www.cosgan.de/images/smilie/teufel/d065.gif

SunisinuS

11-04-2010, 12:12 AM

disolve the fed and where would all the money go/come from? not being antagonistic, just naive/stoned

It's ok, I have one of my degrees in Economics and I find fascinating the General Public(s) reaction to Fed Policy. Even my one of best friends will just rage about things and I have given up trying to explain to him the fundamentals. Ron Paul is another one I just don't respond to either, as he has not the foggiest. You are not being naive at all, you asked the correct question: And if the Fed did not, yes, you can go back to printing your own money as everyone and their grandma did in the first part of the 19th Century.

Dan

11-04-2010, 12:31 AM

and rounds and shells

and beer

and weed

and van halen tickets!

You Missed Out A Full Size Pool Table.:D

Nitro Express

11-04-2010, 12:50 AM

disolve the fed and where would all the money go/come from? not being antagonistic, just naive/stoned

The US Mint like it did before the Federal Reserve Bank existed. The Federal Reserve will go down as one of the largest and successful ponzi schemes in world history.

Nitro Express

11-04-2010, 12:54 AM

Basically the US Treasury Department prints or mints the physical money but the Federal Reserve issues the electronic money. Every dollar issued is through the Federal Reserve Bank which charges our

Nitro Express

11-04-2010, 12:59 AM

Nitro Express

11-04-2010, 01:11 AM

Nitro Express

11-04-2010, 01:22 AM

Nitro Express

11-04-2010, 01:54 AM

The above videos are full of some conspiracy stuff but they do a good job of explaining how central banks like the Federal Reserve work. They have existed for a long-time and eventually fail to later be replaced by another central bank.

GAR

11-04-2010, 04:52 AM

They must think we are stupid. They print $600 billion out of thin air and lend it to themselves ..

- less the Wall St. sales' commision. That's called "printing money" it's a sham, they're gonna try to ramrod it thru lame duck session and I think it's fucked.

Yes, we must be stupid because before the internet search engine, you had a mountain of dewey decimal system cards to search thru, and I think because info today is so accessible, common people who can't stand the library (like me) can search at leisure from home and see what all these terms like "lame duck session" and "majority leader" and all, wtf it means.

btw even with the internet, the CA measure to lower the voting majority on taxes went from 66percent to simple majority, prop 23 passed, Jerry Brown and Boxer were both reelected so California is just either brain-drained with all the white people fleeing the wetback invasion, or whoever's left behind in the state's really fucking stupid.

BigBadBrian

11-04-2010, 06:44 AM

I freely admit, I don't fully understand the implications of this

I hate to say it, but GAR is basically correct about this...the layman term is "printing money."

It's an act of desperation.

BigBadBrian

11-04-2010, 06:49 AM

It's ok, I have one of my degrees in Economics

A quick question I ask to all self-professed Economists (I don't doubt or deny your credentials for one minute BTW) since I've had several economics classes in both undergrad and grad school: Do you understand all of the domestic and global economic issues affecting the US Economy?

Nickdfresh

11-04-2010, 07:54 AM

A quick question I ask to all self-professed Economists (I don't doubt or deny your credentials for one minute BTW) since I've had several economics classes in both undergrad and grad school: Do you understand all of the domestic and global economic issues affecting the US Economy?

Why don't you answer your own rather broad, leading question first?

Seshmeister

11-04-2010, 08:17 AM

0
They must think we are stupid. They print $600 billion out of thin air and lend it to themselves and pay themselves back with interest. The excuse is to lower interest rates but they are down to nothing anyways. What's next? negative interest where you pay the bank to keep your money?

They get away with this shit because the average person is dumb as a post and still wants dollars thinking they are worth something and as long as people are that dumb, they can get away with it for a while longer.

I think this shows one of the biggest differences between most people in Britain and many people in the US.

We would say 'Why are we printing more money, is this a good idea by the politicians?' whereas you seem to view the government elected from you and by you is some separate thing completely unconnected. You see it as 'them' and 'they' helping themselves whereas we tend to see it as a bunch of administrators of mixed ability just trying to not fuck up something that is too complex for anyone to truly understand or predict.

ELVIS

11-04-2010, 08:18 AM

Seshmeister

11-04-2010, 09:11 AM

It's a crazy subject. If you took two highly respected professors of economics and asked them if this is a good idea and chances are they would completely disagree with each other.

BigBadBrian

11-04-2010, 10:51 AM

It's a crazy subject. If you took two highly respected professors of economics and asked them if this is a good idea and chances are they would completely disagree with each other.

You see...that's what i was leading to when I asked SunisinuS that question...which train of economic thought he was on.

Nitro Express

11-04-2010, 11:05 AM

It's ok, I have one of my degrees in Economics and I find fascinating the General Public(s) reaction to Fed Policy. Even my one of best friends will just rage about things and I have given up trying to explain to him the fundamentals. Ron Paul is another one I just don't respond to either, as he has not the foggiest. You are not being naive at all, you asked the correct question: And if the Fed did not, yes, you can go back to printing your own money as everyone and their grandma did in the first part of the 19th Century.

Yeah but they never tell you the Federal Reserve is a private bank in college. They just tell you it's purpose is to control monitary policy to avoid run away economies and depressions. As we can see the Federal Reserve has been a huge failure. Before the Fed various banks issued currency and the US Treasury Department as well. You had to be more careful what you were buying and certain notes were not recognized outside of various local areas. The money was as good as the bank that issued it. What the Federal Reserve has done is consolidated money distribution. A bank in Idaho was selling notes backed by gold and the Feds shut the bank down so the Federal Reserve has a monopoly and also they set the interest rates which flank the free market dynamic of supply and demand and put it in the hands of the Federal Reserve board. So a small group of people instead of a real dynamic market determines what the economy is going to do based on how cheaply money can be borrowed. Anyways, I think the system has gotten away from them and they are stuck with a 0% interest rate and devaluing the currency as the smart investors buy commodities, agricultural assets, mining assets, and water rights.

Nitro Express

11-04-2010, 11:11 AM

Anyone who has worked in banking knows one reality, your bank is as good as your reputation. Once that is squandered nobody is going to want to invest in you. Of course if you have a banking monopoly, nobody has a choice. What the Federal Reserve did was hijack the US Treasury note which had a good reputation and fooled everyone thinking the Federal Reserve was actually part of the US Treasury system which is is not. It's a stand alone private bank with a board of private investors who issue money that is printed by the US Treasury but then it charges us interest on our own money. So it's just a clever ponzi scheme. We know the Fed directors but nobody seems to know who the stockholders in the bank are and the Fed refuses a public audit as well. It's a very secret organization to say the least.

Nitro Express

11-04-2010, 11:30 AM

It's a crazy subject. If you took two highly respected professors of economics and asked them if this is a good idea and chances are they would completely disagree with each other.

I got my degree in finance and I had to take several higher level economics classes. The business school I attended refused to have the department of economics within the college of business. Economics was considered a social science and was taught under the liberal arts college. If you got a degree in economics you got a Bachelor of Arts degree instead of a Bachelor of Business Administration degree. Finance, statistics and Accounting are based on mathmetics and are considered solid business sciences but economics is based on various theories that have yet to be completely proven.

You have a lot of leeway and speculation in economics and that's where the old joke of have seven economists get seven different opinions comes from. I mean they can't even agree if the dollar is inflated or deflated at the moment. An accountant or finance guy will tell you to look at your expenses three or five years ago and compare those prices to what you are paying now. If the prices are higher then your dollar is buying less andy you have inflation. An economist will write volumes of hard to follow theories in very academic flavored language trying to explain whether we have inflation or deflation and you will have a group of these guys who won't agree with each other. In other words, many economists are academics without an ounce of common sense who probably would lose their shirts if they were traders or investors. Most work for think tanks, the government, or academic institutions. Usually what they spout off is questionable and you can always find another economist to counter argue what the current economist is saying. They never agree on anything. Politicians like to find economists that tell them and the public what they like to hear.

Satan

11-04-2010, 11:36 AM

This printing money thing reminds me of the old joke about the housewife who thought as long as she could write checks, she had money.

Though at least in the old days that was technically true to some extent. You could write checks all over town on the weekend, and know that if you made a deposit on Monday it was all good. Or even if your account was empty, you could pretty much get away with bouncing checks under $250 without anyone calling the cops. I never did that myself, but I had an old friend who did. She wrote checks and even took daily ATM withdrawals on an empty account for damn near a month. All was going well until she decided to buy $300 worth of groceries at Safeway. Cops were called for that one. Lucky for her she had no priors, so no jail time or anything. She did have to go to Job Corps, but she was probably going there anyway, from what I remember.

That was in the early 1990's. No way in Hell you could pull that off today. It's probably good that it cuts some crime down, but it's bad to those who could really use the "weekend bounce" thing, in this economy which wasn't hurting anyone

Nitro Express

11-04-2010, 11:40 AM

As far as current Fed policy goes, it's simple. Ben Bernanke is trying to hold onto his job as Fed chairman. If he loses his job he has nowhere to go except back to being an academic at a university somewhere. The pay, power and prestige is better at The Federal Reserve Bank. Ben can do one of two things, raise interest rates or keep rates at zero and play a bunch of games and blow a lot of smoke. If he raises rates he will sink the economy and he knows it. He's in a corner and out of ammunition so he's going to play the clock out with bull shit masturbating. If printing money and loaning it to yourself and paying yourself interest isn't masturbation I don't know what is. But of course the Average person can't even balance their check book and they grew up thinking those green pieces of paper were worth something so as long as Bubba can trade a Federal Reserve Note for a beer, Ben's wanking works.

Nitro Express

11-04-2010, 11:43 AM

Well I'm paying some bills right now. The gas company and electric company still want Federal Reserve notes instead of sexual favors from my wife, gold, silver, vodka or the venison back straps I cut off the deer I killed. So as long as they want Ben's masturbation notes, I need some and they are still worth something.

Nitro Express

11-04-2010, 11:47 AM

But I think they should put Ben Bernanke's picture on the US Dollar and call it a Ben Bernanke Masturbation Note. Legal tender for all debts owed to people who are still stupid enough to accept them. In masturbation we trust...:biggrin:

Nitro Express

11-04-2010, 11:52 AM

How's the Vatican these days Satan? Still having those group orgies with the Pope and Jesuits at the Cathedral of St. John the Baptist?

Seshmeister

11-04-2010, 12:13 PM

I think he's too busy running News International at the moment to have time for such fripparies.

SunisinuS

11-04-2010, 04:50 PM

Ergo Ipso Facto: I'm out! Party on! Ad Hominem Ad Nauseum!

Jesus H Christ

11-04-2010, 08:06 PM

Ron Paul Is About to Totally Revolutionize the House Monetary Policy Panel
http://www.cnbc.com/id/40013227

Odds are you haven’t heard of the monetary policy subcommittee. Officially known as the House Subcommittee for Domestic Monetary Policy and Technology, it’s a subdivision of the House Financial Services Committee that has mostly occupied itself with pressing questions of issuing commemorative coins and whether or not to eliminate the penny.

That’s about to change. Ron Paul, the Republican Congressman from Texas, is the ranking member of the monetary policy subcommittee, and when the next Congress takes over he’ll likely be the chairman of the subcommittee.

And Congressman Paul has some big plans.

“I will approach that committee like no one has ever approached it because we’re living in times like no one has ever seen,” Paul said in an interview with NetNet Thursday.

Paul said his first priority will be to open up the books of the Federal Reserve to the American people.

“We need to create transparency there. To see what it is they are buying and lending, and who it is they are dealing with,” Paul said.

Paul mentioned that he hoped to use subcommittee hearings to educate the public about the causes of business cycles—which he believes are mainly attributable to monetary manipulation by central bankers.

Monetary reform is also on the agenda. Paul is a noted advocate of the gold standard.

“We will have to have monetary reform,” Paul said. “I think those on the other side of this issue are already planning. They are going to try to replace a bad system with an equally bad system.”

End the Fed, Save the Dollar: Ron Paul
http://www.cnbc.com/id/32881898

Seshmeister

11-04-2010, 08:11 PM

Ron Paul?

He's that character from the Bruno movie isn't he?