Gary North on current economic affairs and investment marketsGary North -- Specific Answers
HomeContact MeTell a FriendText SizeSearchMember Area
Gain immediate access to all of our current articles, the question-and-answer forums, dozens of free books, and article archives. Click here for details on how to join.

About This Site
Academic Gaps
Articles
Capitalism and the Bible
Clichés of Protectionism
College Finances
Debt Management
Ellen Brown: Critique
Federal Reserve Charts
Gary North's Free Books
Get Published Here!
Gold Price & My Report
Keynes Project
Price Index (U.S.A.)
Questions for Jim Wallis
Remnant Review
Social Security/Medicare
Sustained Revival
Tea Party Economist
U.S. Debt Clock
Yield Curve
Your YouTube Channel
Gary North's Miscellany
Advertising
Blogging
Budgeting for Wealth
Business Start-Up
Career Advancement
Digital Tools
Education That Works
Evernote: Free Notes
Federal Reserve Policy
Fireproof Your Job
Goal-Setting for Success
Great Default
Inheritance Strategies
Insurance
International Investing
Investment Basics
Job and Calling
Keynesian Economics
Leadership
Marketing Case Studies
Obamanomics
Precious Metals
Real Estate
Retirement
Safe Places
State of the Economy
Stocks and Bonds
Study Habits
Video Channel Profits
War With Iran
Members' Free Manuals
Our Products
Contact Me
Help
Tell a Friend
Text Size
Your Account
My 100% Guarantee
Privacy Policy
Terms of Use


This site powered by MemberGate

The FOMC's Plan to Buy $1.1+ Trillion of T-bonds, Mortgage Debt, and "Other Financial Assets"

Gary North
Printer-Friendly Format

March 19, 2009

The financial media is a-buzz over the Federal Open Market Committees decision yesterday to buy over a trillion dollars in assets. Here is an example. Another is here.

Let me parse the text of the FOMC's press release.

Information received since the Federal Open Market Committee met in January indicates that the economy continues to contract. Job losses, declining equity and housing wealth, and tight credit conditions have weighed on consumer sentiment and spending. Weaker sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories and fixed investment. U.S. exports have slumped as a number of major trading partners have also fallen into recession. Although the near-term economic outlook is weak, the Committee anticipates that policy actions to stabilize financial markets and institutions, together with fiscal and monetary stimulus, will contribute to a gradual resumption of sustainable economic growth.

The facts point to a continuing decline in the economy. On the other hand, the Committee anticipates that the decisions of the Committee will slowly restore the economy. This is reassuring. Think of what the Committee would have had to say if the Committee believed that it was the decisions of the Committee, 2000 to 2007, that got us into this mess.

In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued.

Subdued. I like that. It conveys an image of a guy in a straight-jacket who is on Valium.

Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.

Here it is, folks: inflation fosters economic growth. We just don't have enough inflation. The Committee will remedy that!

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability.

Got that? We need more inflation in order to promote price stability. You read it here first!

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

The Committee will maintain a rate that says that capital is a zero-price resource. Scarcity has been repealed "for an extended period of time."

To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve's balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion.

There will be an additional $750 billion in the monetary base, meaning high-powered money. This will support the housing market. We wouldn't want affordable housing. The job of the Federal Reserve System is to keep housing prices higher than the free market would maintain. This policy is consistent with the present policy of increasing inflation in order to attain price stability.

Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months.

The Interest rate on 10-year T-bonds was 2.5% yesterday. This is the longest maturity in the plan. This rate is above 0%, the rate for federal funds -- overnight loans, bank to bank. The Treasury would prefer T-bond rates closer to 0%. So, the FOMC will add an additional $300 billion in high-powered money to achieve this.

The Federal Reserve has launched the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses and anticipates that the range of eligible collateral for this facility is likely to be expanded to include other financial assets.
The FOMC will extend credit -- more high-powered money -- with collateral based on "other financial assets." What might these be? And how much money will be involved? Silence.

The Committee will continue to carefully monitor the size and composition of the Federal Reserve's balance sheet in light of evolving financial and economic developments.

The Committee will monitor what the Committee is buying. This is good. What if the Committee did not monitor what the Committee is buying?

Developments are evolving. Developments have a tendency to do this.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

Unanimous!




Printer-Friendly Format

 Tip of the Week
Sign up for my free
Tip of the Week
Verification Characters:    Type     K  Q  B  J  Z     here   


Tip of the week archives
On what this icon
means, and how it
can help you,
click here
 Q & A Forums
General Q&A Forum
Advertising and Resumés
Affiliates
American History Topics
Backyard Food Gardening
Banking and Politics
Blog Sites and Web Sites
Books Worth Reading
Bumper Sticker Slogans
Business Forum
Buying Smart
Christian Service Forum
College -- The Cheap Way
Copywriting
Education Alternatives
Food Storage
For Women Only
Fukushima
GNC Benefits
GNC Testimonials
Gold and Silver
Great Default Forum
Health and Diet
Health Insurance
Homeschooling
Investments Forum
Iran War
Job, Calling, and Career
Leadership Development
Legacy Building
Less Dependent Living
Local Political Action
Non-Retirement Forum
One Good Idea
Police State
Privacy
Public Speaking
Real Estate Forum
Remnant Review Forum
Safe Places Forum
Taxation Policy
Typographical Errors
Video Production Basics

 Archives
Reality Check
 Discussion Forum
Search Discussion


Recent Forum Posts
• Retirement Fund: Advertising budget
• Kotlikoff says SIPC insurance is a fraud
• How to Evaluate A Country's Economic Condition
• Eugene Fama's Dimension Funds
• Financial Management Sites
• Don't Touch Principle Follow Up
• FOREX (I use OANDA.com) - trading ideas -
• Funding Retirement vs. Paying Off Mortgage
• Timing Canadian dollar purchase
• Investing in specific stocks
• Investing in Christian Businesses
• Asset seizure risk
• 403B Sidelines
• Ammo hoarding
• Abandon Ship?
• Housing Costs
• I inherited a house in SF CA, rent it or sell it?
• Any advice on how to deal with city council
• RE investment dinner and seminar
• Goodbye California, Hello Texas
• Would you consider selling using an auction?
• First debt free rental done
• Plaster wall repair and paint
• No-recourse loan in an IRA
• Buying duplex for my 72 yo sis to run from afar
• Depreciation versus maintenance expenses
• lease to own
• Real Estate Wholesaling - Direct Marketing
• Selling a house without a real estate agent
• Inspection before listing house
• No City for Old People
• Will you die getting to your bug out location?
• teaching English overseas - some questions
• The state with the most Liberty
• Switzerland and Firearms
• On "Zip Code Searching On The Web"
• Crash Course in becoming an Expat
• Anyone tried Puerto Rico?
• Chattanooga, Tennessee
• Middle Class squeezed out of Chicago
• An Article on Chile
• 5 Amazing, Cheap Places to Live as an Expat
• Oil Field Job Security
• Moving to TriCities Area
• PJ ORourke on the Baby Boom
• advice on how do I interact with my older parents?
• Do You Sincerely Want to Be Rich? Why?
• Req. For No 401(k)/Other Pensions via Relocatio
• Cashing out 401K to pay student debt?
• SS @ 62 and still working
• Desolation or Prosperity?
• I take it Retirement Armageddon is not available
• Post Retirement Career
• Social Security - when to start collecting
• 401K Risk
• Detroit Retirees Fight 83% Health Care Cut
• Lump Sum Early DROP
• Underfunded pensions
• 401k strategy
• Can I Avoid Medicare Entirely?
• advice for a young father
• Consider Canadian drugstores4 cheaper prescription
• Why so many Americans would consider Seceding?
• A generation of sissies
• Opinions please
• Gold & Silver IRA ~ YOU Hold the Metal
• The Economic Recovery as Seen from the Air
• The Code
• Which Global Hegemon Is on Shifting Sands?
• Illustration of Ill Lustration
• Cataract surgery in India
• Class of 1964 in Rural Virginia
• Staying with the Dying Company
• Which is best: Inflation or deflation
• Prefab houses and advertising sites.
• Day Care in Cary
• RE: If This Is Your Boss
• Entrepreneuring in a socialist nation
• Undoing the Walmart model?
• Quickbooks Alternatives for Small Family Business
• Make a few bucks selling books
• Retail vs Online - a personal experience
• freeman workbook on entrepreneurism
• Selling ad space in my newsletter
• Angel's Game
• aweber list and marketing
• Paid counseling web site
• Wife's small business - Spanish Immersion 4 chldr
• Alternative to Quicken 2014 needed
• wds2014 in Portland, Oregon