Do not get caught up in the "Smoke in the Mirror" or let the"Rabbit" in the dog race distract you from what has happen in the past. Do you remember on September 13, 2012, while the American people were being distracted by events in Libya and the Middle East, the Federal Reserve announced the extension and modification of “Operation Twist,” a so-called stimulus move that was launched in September of 2011. The policy involved selling $400 billion in short-term Treasuries in exchange for the same amount of longer-term bonds, starting in October 2011 and ending in June 2012. This move was to push down interest rates while supposedly not increasing the money supply, an action many economists did not support. Even within the Fed three regional bank presidents dissented against the decision, believing that the move could increase the risk of inflation without enticing potential borrowers to take on more debt. The stimulus did not reduce the unemployment rate enough, so Ben Bernanke, head of the Federal Reserve, announced on September 13, 2012, that the Fed would buy $40 billion of mortgage-backed securities indefinitely each month until he felt that the economy was picking up steam. The banks from whom the Fed buys those securities would then turn around and purchase U.S. Treasury notes. These $40 billion worth of Treasury notes (U.S. debt) will be held on the banks’ balance sheets as assets, enabling them to lend or invest an additional $400 billion, thereby increasing the money supply by $400 billion by issuing more debt instruments each time the Fed buys $40 billion of mortgage-backed securities. Immediately after the Fed announced this move, the Dow Jones industrial average jumped by over 200 points. Pay attention to the so-called Almighty Dollar, Inflation and the Economy. Peace Out with much love
Posted on: Fri, 04 Oct 2013 09:27:45 +0000
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