Ken Nelson

The Fed, having reached essentially 0% to borrow money from it, is now basically paying people to take dollars.

They will pump a newly printed $1 trillion dollars into the economy by purchasing Treasury bonds and mortgage backed securities.

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.

As scary as this sounds at least it isn’t a trillion dollars minted to give to Democratic constituency groups.   It is too bad our elected officials failed us then, and that now the Fed feels they have to step in and actually “stimulate”.   Perhaps Bernake should have told Obama “ain’t gonna do it – time to grow up”.

Will it work?  Probably not:

"Even if the Fed could make interest rates negative, that wouldn’t necessarily help," Mr. Hatzius said. "We’re in a deep recession mainly because the private sector, for a variety of reasons, has decided to save a lot more. You can have a zero interest rate, but if you just offer more money on top of the money that is already available, it doesn’t do that much."

You see the problem just might not be the amount of money rolling around. It is uncertainty about just how crazy this new Democratic majority really is.  The Stimulus Bill was a shot across the bow of American capitalism.  Now nobody is sure what to do, or even if they should bother to do anything other than run for cover.

Given that the U.S. economy in 2008 was about $14.2 trillion, this one move, overnight by the Fed, roughly reduces the value of the dollar by 1/14, or 7%.  And that is not even counting the $10 trillion they and the US Treasury have already blown through. That is a deflation of the US dollar by 85%.

Who does this hurt?  Those who saved money. Those who have debt get to pay it back with cheap money.  So, you see, no matter what you do – in 2009 America, if you are a responsible, mature adult, prepare to get hosed.

But ultimately, this hurts everybody. Those that aren’t responsible leach off those that are.  But those days may be behind us, as who in his right mind would be “responsible” anymore?