International Herald Tribune

Fed to Pump Another $1 Trillion into U.S. Economy
by Edmund L. Andrews
2009 Mar 18

(excerpts)

The Federal Reserve sharply stepped up its efforts to bolster the economy on Wednesday, announcing that it would pump an extra $1 trillion into the financial system by purchasing Treasury bonds and mortgage 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.

The action makes the Fed a buyer of long-term government bonds rather than the short-term debt that it typically buys and sells to help control the money supply.

The idea was to encourage more economic activity by lowering interest rates, including those on home loans, and to help the financial system as it struggles under the crushing weight of bad loans and poor investments.

. . .

All these measures would come in addition to what has already been an unprecedented expansion of lending by the Fed. The central bank also said it would probably expand the scope of a new program to finance consumer and business lending, which gets under way this week.

In effect, the central bank has been lending money to a wider and wider array of borrowers, and it has financed that lending by using its authority to create new money at will.

Since last September, the Fed’s lending programs have roughly doubled the size of its balance sheet, to about $1.8 trillion, from $900 billion. The actions announced on Wednesday are likely to expand that to well over $3 trillion over the next year.

. . .

Jan Hatzius, chief economist at Goldman Sachs, said the Fed had adopted a "kitchen sink" strategy of throwing everything it had to jolt the economy out of its downward spiral.

. . .

Fed officials have been wrestling for months with the fact that lenders remain unwilling to lend and borrowers are unwilling or unable to borrow. Even though the Fed has been creating money at the fastest rate in its history, much of that money has remained dormant.

The Fed’s action is an expansion of its effort to bypass the private banking system and act as a lender in its own right.

. . .

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You can read this article in its entirety here, if you like. Although they’re not quite dropping money out of helicopters yet, they may as well be.

So, here’s a brief rundown of what’s in our nation’s monetary pipeline so far this fiscal year... As of last summer, our nation’s total money supply was only around $12 trillion or thereabouts and our GDP was only around $14 trillion. Then things got interesting last fall as a new fiscal year began, along with Bush’s big bailouts. CNBC’s tally estimated that our government had allocated about $7.3 trillion for bailouts as of November 28th, as you can read here, although not all of it has actually been spent yet. Obama’s economic "stimulus" package committed our government to spend hundreds of billions more. And, of course, his omnibus spending bill has only increased that amount. And, now, the Federal Reserve System is throwing another $1 trillion into the mix. This tally of commitments must now be approaching $10 trillion for this fiscal year, most of which the Fed has or will create out of thin air, sooner or later, either directly or indirectly, since the bulk of these massive financial commitments can’t possibly be paid by taxing us. As the Fed gradually conjures this $10ish trillion into existence during these coming months, our banking system will gradually multiply it tenfold (assuming a standard 10% reserve ratio) through the "dark magic" of fractional-reserve banking, which will make it become $100 trillion. This, of course, is a huge increase from $12 trillion last summer. If you haven’t done so already, then please prepare yourselves ASAP to survive hyperinflation, which we will likely witness before this year ends.