Archive for Wednesday, August 11, 2010

Fed will buy U.S. debt

August 11, 2010


— As recently as two months ago, the Federal Reserve sounded optimistic about the economic recovery. Now the central bank is taking a new step that shows it is clearly more worried, but economists say it probably won’t help much.

The Fed said Tuesday that it would spend a relatively small amount of money — about $10 billion a month, economists estimate — buying government debt. The move is designed to drive interest rates on mortgages and corporate borrowing at least a little lower and help the economy grow faster.

In a statement after a one-day meeting, the Fed said the pace of the recovery “has slowed in recent months.” After its last meeting in late June, the Fed was rosier, saying that the recovery was “proceeding” and the job market actually improving.

The decision to buy government debt, using proceeds from Fed investments in mortgage bonds, was a shift from earlier this year, when the Fed was laying out plans to roll back some of the measures it took during the financial crisis.


Shane Rogers 7 years, 4 months ago

I'll give them a significantly better deal on my debt....


Ron Holzwarth 7 years, 4 months ago

I don't understand these things at all. Does this mean they are just printing more money?

Ron Holzwarth 7 years, 4 months ago

I studied how transistors work at the molecular level, and at one time could explain that quite well. But what you just said made no sense to me at all. It does sound bad though.

HaRDNoK9 7 years, 4 months ago

Does this promote a V shaped recovery or does the graph look more like an L? Keeping the interest rates artificially low slows things down, but ultimately the "recovery" is always moving downward because it is always catching up to where the interest rates should be. So the trick is to make an economy that is moving downward look like it is going upward or look like it is staying the same? All of this is counter productive in the end is it not? Without real productivity, it will hit bottom sooner or later, right? Why not just pull the rug out from under it and have a race to the bottom if the bottom is where we are going to land anyway?

jafs 7 years, 4 months ago

Actually, I believe that keeping rates low is an attempt to speed up, not slow down, the economy.

When they want to slow things down, they raise rates.

jafs 7 years, 4 months ago

And now China has much of our debt - also a problem.

Ron Holzwarth 7 years, 4 months ago

You mean, sort of like Proverbs 22 [7] ?

The rich rules over the poor, and the borrower is the slave of the lender.

Flap Doodle 7 years, 4 months ago

The mid-term elections can't get here fast enough.

Ron Holzwarth 7 years, 4 months ago

Tom - I think that Annette Funicello is just to fine of a person for her name to be misspelled in a public place. In addition to bringing moments of happiness to millions, she has done a lot for people with neurological disorders such as multiple sclerosis, from which she suffers to this very day.

In 1993, she opened the Annette Funicello Fund for Neurological Disorders at the California Community Foundation.

Mike Hatch 7 years, 4 months ago

I agree. Not to mention that, unfortunately, she has lost her eyesight and is confined to a wheelchair.

Godot 7 years, 4 months ago

This foolish gambit is pure desperation.

"FORTUNE -- The Great Depression. Wall Street in 1987. Japan in 1997. Points of economic collapse are generally crystal clear in the rear-view mirror. Professional politicians in Japan have been telling stories for 20 years as to why they can prevent economic stagnation. In the US, the storytelling started in 2007. All the while, stock market and real-estate prices have repeatedly rallied to lower-highs, then collapsed again, to lower-lows.

Despite the many differences between Japan and the US, there is one similarity that continues to matter most in the risk management model my colleagues and I use at Hedgeye, our research firm -- debt as a percentage of GDP. Now that the US can't cut interest rates any lower, the only option left on the table is what the Fed just announced it would start doing -- buying Treasury debt. And that could lead the country to the brink of collapse: According to economists Carmen Reinhart & Ken Rogoff, whose views we share, crossing the 90% debt/GDP threshold is the equivalent of crossing the proverbial Rubicon of economic growth. It's a point from which it's almost impossible to return."

kernal 7 years, 4 months ago

I read this too, Godot and had to remember to breathe!

monkeyhawk 7 years, 4 months ago

"And that could lead the country to the brink of collapse:"

Obama's mission accomplished moment.

beatrice 7 years, 4 months ago

What does his being Black have anything to do with anything? No matter what color our current President is, it wouldn't have prevented Bush from crashing the country in the first place.

kernal 7 years, 4 months ago

The heck with the movie tickets. I remember when inflation was ridiculously high in South America and people were paying double digits for bread and milk.

Godot 7 years, 4 months ago

Bernanke is pulling out the last thing he has in his bag of tricks in a last-ditch effort to stave off a deflationary spiral. Hope it doesn't backfire.

Godot 7 years, 4 months ago

The Bboy and Timmy the Tax Cheat are conspiring to prop up the prices of houses, stocks, etc, artificially, because they fear that if prices fall to their realistic level, the economy will collapse. Problem is that what Bernanke/Geithner/Summers/Obama are doing puts our economy at huge risk of hyperinflation. Buffett seems to think that is in our future.

"Just as the specter of deflation is gaining ground, Warren Buffett is taking the contrarian view and positioning Berkshire Hathaway's (NYSE: BRK-A - News; NYSE: BRK-B - News) bond portfolio for higher inflation. Has he lost the plot?

In the second quarter, Buffett continued to rebalance Berkshire's $34.5 billion fixed-income portfolio toward shorter maturity bonds, which bonds are less sensitive to increasing interest rates. When interest rates go up, which, barring a Japanese "lost decade" scenario, will eventually happen, bond values go down -- but the shorter maturity bonds go down less."

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