More stimulus from the Federal Reserve

[GostHacked]

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

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.

So who do we blame this on? Reps? Dems? Obama? Bush?

How much money does the Federal Reserve have in order to pump out this kind of money? Have they been hoarding it? Or is someone else footing the bill? China maybe?

Meh, what's another trillion right?

[bush_cheney2004]

How much money does the Federal Reserve have in order to pump out this kind of money? Have they been hoarding it? Or is someone else footing the bill? China maybe?

The Fed can print as much money as it wants...which is better than "hoarding" it.

Meh, what's another trillion right?

Right.

[Michael Hardner]

My understanding is that interest rates can't go much lower... so... what else to do ?

[GostHacked]

The Fed can print as much money as it wants...which is better than "hoarding" it.

Right.

Should we expect some hyper inflation happening then? So printing money out of thin air?

[bush_cheney2004]

Should we expect some hyper inflation happening then? So printing money out of thin air?

No...the Fed is actually concerned that there is too little inflation, as in the economy failing to heat up. The Fed will start buying up Treasuries in $75 billion chunks until it sees some movement. Healthy economies are about the velocity of money, and Americans are still hoarding cash (not spending as before).

If the American consumer does not go back to previous habits, there are long term ramifications for the world economy.

[Pliny]

No...the Fed is actually concerned that there is too little inflation, as in the economy failing to heat up. The Fed will start buying up Treasuries in $75 billion chunks until it sees some movement. Healthy economies are about the velocity of money, and Americans are still hoarding cash (not spending as before).

If the American consumer does not go back to previous habits, there are long term ramifications for the world economy.

ewwwwwh.....hoarding, that was the evil thing that occurred in the "great" depression and in 1933 the government solved that problem by having Americans turn over their gold.

Of course people are "saving". When you can't predict what the government is going to do re, taxes, interest rates, spending, inflating, deflating, regulation, takeovers, bailouts, expansion, intervention, what do you do with your money? Keep it in a safe place, right?

One of the qualities of money that defines it is that it is a "store of wealth". It isn't today because it has become merely paper or an electronic accounting entry.

In Zimbabwe, during it's hyper-inflationary period you should have seen the activity on the stock market as people tried to find safe investments for storing their wealth.

Anyway, gold isn't the concern it was in the thirties, you have to watch your 401k and IRA and one way to take it away is to devalue the dollar through inflation. That'll stop the hoarding, but where do we go from here? Back to gold?

Quantative easing is simply the wrong policy. It will create a crisis of the dollar similar to the crisis of gold created in the twenties.

[eyeball]

If the American consumer does not go back to previous habits, there are long term ramifications for the world economy.

Yeah, it'll be that much closer to having a basis in reality.

[bush_cheney2004]

...Anyway, gold isn't the concern it was in the thirties, you have to watch your 401k and IRA and one way to take it away is to devalue the dollar through inflation. That'll stop the hoarding, but where do we go from here? Back to gold?

Gold is a fool's short term refuge...see the Hunt Bros and silver hoarding back in the 1970's.

[GostHacked]

No...the Fed is actually concerned that there is too little inflation, as in the economy failing to heat up. The Fed will start buying up Treasuries in $75 billion chunks until it sees some movement. Healthy economies are about the velocity of money, and Americans are still hoarding cash (not spending as before).

If the American consumer does not go back to previous habits, there are long term ramifications for the world economy.

Cost of housing, cars, fuel, food has all gone up. While wages have gone down or stayed steady. The value of the greenback is much lower than it was 10-20 years ago .. but all this is to show that inflation is low? Seems like quite the opposite.

[Topaz]

Good question, what its worth and its worth hundreds of BILLIONS!!! Info. for that near the bottom of the following http://en.wikipedia.org/wiki/Federal_Reserve_System

[Shady]

I think it's an attempt to lower the dollar, and therefore help exports. And perhaps increase confidence. Also, inflation is easier to deal with than deflation. If inflation gets bad, interest rates will go up sharply. Which will definitely help stop any inflation, but at the same time stop any economic growth.

[maple_leafs182]

I could take this the conspiracy way and say that the Federal Reserve is bringing down the U.S. Dollar and economy in order to gain public support for implementing some sort of North American or global currency by claiming it to be some sort of savior.

Gold is a fool's short term refuge...see the Hunt Bros and silver hoarding back in the 1970's.

No it isn't. Countries are flooding the market with currencies, precious medals are bound to go up in this environment. I started buying silver at $16.50/ounce, its now worth $26.00/ounce and will continue to go up because of programs like QE2 and other central banks inflationary policies.

[Shady]

I could take this the conspiracy way and say that the Federal Reserve is bringing down the U.S. Dollar and economy in order to gain public support for implementing some sort of North American or global currency by claiming it to be some sort of savior.

I don't see that happening at all. If Greece taught us anything, it's that countries should possess their own currency.

[Sir Bandelot]

Meh, what's another trillion right?

Yeah a trillion here, a trillion there, pretty soon you're starting to talk about real money...

[bush_cheney2004]

I could take this the conspiracy way and say that the Federal Reserve is bringing down the U.S. Dollar and economy in order to gain public support for implementing some sort of North American or global currency by claiming it to be some sort of savior.

Why stop there...let's go with galactic currency from Planet X.

No it isn't. Countries are flooding the market with currencies, precious medals are bound to go up in this environment. I started buying silver at $16.50/ounce, its now worth $26.00/ounce and will continue to go up because of programs like QE2 and other central banks inflationary policies.

Gold has smashed through it's previous inflation adjusted high of $850 USD...nothing happened then either in the way of a global currency.

[sharkman]

Just to be clear, what's happening from the Federal Reserve is not from the stimulus bill. They are indeed trying to get the economy warmed up when Americans don't feel confident about spending. Some are warning that this kind of strategy can result in major inflation.

[GostHacked]

Just to be clear, what's happening from the Federal Reserve is not from the stimulus bill. They are indeed trying to get the economy warmed up when Americans don't feel confident about spending. Some are warning that this kind of strategy can result in major inflation.

Inflation goes up, we have yet to experience deflation. Or at least since I've been alive.

[Pliny]

Inflation goes up, we have yet to experience deflation. Or at least since I've been alive.

Whenever we get some downward price adjustments governments panic and think we are going into a period of deflation. They will then create more money and easy credit which is precisely what they are doing now with ZIRP and QE.

They created the housing bubble with low interest rates and easy credit. The bubble finally burst and they are continuing on with the same policy of low interest and easy credit. That will basically create another bubble somewhere, the currently bullish stock market is what I suspect, and then it will all come crashing down.

This will be a crisis that I'm certain the Obama administration will not let go to waste.

[nicky10013]

I don't see that happening at all. If Greece taught us anything, it's that countries should possess their own currency.

That would make sense if the EU didn't comprise of a single economy. The EU, economically, is as integrated as Canadian Provinces or US states if not more so.

[Pliny]

I think it's an attempt to lower the dollar, and therefore help exports. And perhaps increase confidence. Also, inflation is easier to deal with than deflation. If inflation gets bad, interest rates will go up sharply. Which will definitely help stop any inflation, but at the same time stop any economic growth.

Lowering the value of the dollar does not increase confidence.

As someone mentioned, he doesn't think he has ever lived though a period of deflation. They are not going to increase interest rates. They are going to pursue a zero interest rate policy coupled with quantative easing.

Commercial banks are warned not to raise interest rates.

[bush_cheney2004]

Inflation goes up, we have yet to experience deflation. Or at least since I've been alive.

Maybe not directly, but you have certainly lived through deflation elsewhere, as in the case of Japan.

Canada's deflation psychology is already here:

http://www.cbc.ca/money/story/2008/11/21/f-pittis-deflation.html

[GostHacked]

Maybe not directly, but you have certainly lived through deflation elsewhere, as in the case of Japan.

Canada's deflation psychology is already here:

http://www.cbc.ca/money/story/2008/11/21/f-pittis-deflation.html

That article is missleading.

But when the U.S. government released its figures for October, everything changed. Not only did prices fail to rise in the month of October — prices actually fell one per cent.

Falling prices sound good. If you're in the market to buy something, and if you have money in your bank account, deflation is good for you. Gas is cheaper at the pumps. Finally you have the prospect that your money will go further.

Falling prices are good for the buyer. But using gas as an example of falling prices is very misleading because gas has gone up and down quite a bit over the past decade. So a drop in gas prices is not a good example of deflation if it's the only one that goes down now and then. On average we are paying more for gas than 10 years ago.

The reason economists worry about deflation is, like many issues in economics, rooted in human psychology.

When prices are rising, the best time to buy something you need is now. If you buy it next year, it will be more expensive.

But if you are convinced that prices are falling, the psychology changes. In that case, delaying a purchase only makes it cheaper.

And wait long enough and the prices go back up. But one reason why prices may drop is because of the cheap labour and products we get from overseas. However that money tends not to stay in the US or Canada and goes to countries like China. But even in the long run these cheap products will become more expensive.

But if deflation does come, and prices do start creeping ever downward, I'd like to offer the government a solution. Unlike the U.S. government, which handed out stimulus cheques that have now been spent or used to pay down debt, Canada should not just hand out money. Instead, it should use a tactic from retail to get the people who have money spending it: the time-limited discount offer. Twenty per cent off, but spend it now, before it's too late

Kind of like what Bush said after 9/11, go shopping.

[bush_cheney2004]

That article is missleading.

OK...but I didn't write it.

Falling prices are good for the buyer. But using gas as an example of falling prices is very misleading because gas has gone up and down quite a bit over the past decade. So a drop in gas prices is not a good example of deflation if it's the only one that goes down now and then. On average we are paying more for gas than 10 years ago.

Not for inflation adjusted dollars....gas prices did not maintain the inflation adjusted high for 1981.

And wait long enough and the prices go back up. But one reason why prices may drop is because of the cheap labour and products we get from overseas. However that money tends not to stay in the US or Canada and goes to countries like China. But even in the long run these cheap products will become more expensive.

That's what the US Fed wants...higher prices means more dollars chasing scarce goods. They will worry about inflation later. Jump starting the economy is more important right now.

Kind of like what Bush said after 9/11, go shopping.

Yep...and it worked then...not now. People are hoarding cash (or as Pliny says > saving).

[maple_leafs182]

That's what the US Fed wants...higher prices means more dollars chasing scarce goods. They will worry about inflation later. Jump starting the economy is more important right now.

What makes you believe that inflation will solve the problem?

[bush_cheney2004]

What makes you believe that inflation will solve the problem?

Inflation does not solve the problem...but it is an indicator that consumer spending has rebounded for an economy that depends on the velocity of money (one of the variables for inflation). Still lower interest rates should spur more purchases of durable goods, housing, automobiles, etc.

Shocking a patient with paddles is not routine medical procedure, but sometimes it is necessary to get a pulse and vitals back.