The Fed is The Problem

WASHINGTON (AP) -- The Federal Reserve announced Wednesday it will spend up to $300 billion over the next six months to buy long-term government bonds, a new step aimed at lifting the country out of recession by lowering rates on mortgages and other consumer debt.

At the same time, the Fed left a key short-term bank lending rate at a record low of between zero and 0.25 percent. Economists predict the Fed will hold the rate in that zone for the rest of this year and for most -- if not all -- of next year.

Fed purchases should boost Treasury prices and drive down their rates. That would ripple through and lower rates on other kinds of debt. The last time the Fed set out to influence long-term interest rates was during the 1960s.

The Fed also said it will buy more mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac to help that battered market. The central bank will buy an additional $750 billion, bringing its total purchases of these securities to $1.25 trillion. It also will boost its purchase of Fannie and Freddie debt to $200 billion.

"This is not only going to keep mortgage rates low for a long period of time," said Greg McBride, a senior financial analyst at Bankrate.com. "The mere announcement may produce a honeymoon effect and bring mortgage rates down to even lower levels in the coming days."

In addition, the Fed said a $1 trillion program to jump-start consumer and small business lending could be expanded to include other financial assets.

This is doom. We're history. Hunker down and expect the firestorm, cause it's on its way.

While the Congress is prancing around and posturing over a few millions in executive bonuses, the Fed is busy running the economy straight off the cliff.

The Federal Reserve does not have this money. They don't have $1 trillion. This money does not exist. It's being manufactured out of thin air. The Fed and the Treasury, while ostensibly different institutions, between themselves they are playing with pretend money.

If you bought a new ledger book, sharpened your pencil, and wrote $1 trillion in a column you designated as "assets", it would look good...but you really wouldn't have $1 trillion in actual assets...you'd just have a ledger book with that number written in it. You couldn't really spend it, 'cause it isn't really there.

And that's exactly what's happening with the Fed. They don't have $1 tillion with which to buy treasuries or lend or spend any more than you do.

Of course, the difference is, the Fed can spend it anyway!

This money is not borrowed from the Chinese—who buy Treasuries with actual money. This is money magically precipitated out of thin air.

There's only one tiny problem, of course. We are balanced on the edge of a knife. And if the Fed and the Treasury don't time it just right, we'll slip off into out-of-control inflation—hyperinflation—because of this huge dump of worthless money, which will devalue the dollars currently in the economy: the money you have will be worth less and less, and your buying power will be crippled.

You will be impoverished, even if you have saved money, paid your debts, been thrifty and responsible. All the money you have saved responsibly will be worth nothing.

The Fed wants more money to be available to be borrowed at low interest rates. In other words they are encouraging debt and spending, which is exactly what got us into this hole in the first place. More of the same is not going to fix it!

The price of gold went up $70 in 24 hours. Confidence in the currency is tanking among those who understand the implications of this insanity.

The Gunslinger