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Federal Reserve Printing Money Again   August 10th, 2010
It took longer than I expected, but they're finally back at it       

 
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Today the Federal Reserve announced its intention to start printing money again. Luckily it won't print that much. It'll just be maybe a "modest" $100 billion this time, no big deal.

At the end of its meeting Tuesday, the Fed said it will use money from its investments in mortgage securities to buy government debt on a small scale.


When the Federal Reserve "buys government debt," it means we're printing money again.

Not surprisingly, Obama's "stimulus" bill hasn't done much to spark a real recovery. Most conservatives predicted that, including myself here and here--both of which I wrote over a year ago. But the stimulus bill was so large that, for 6 months last year, the Federal Reserve printed $300 billion to fund the excessive government spending.

In March of 2009 I wrote:

Also note that this is just an announcement of what the Federal Reserve intends to do over the next six months. In order to continue funding the deficit spending, it's a pretty safe assumption that the Federal Reserve will end up printing some more money after that.


That's where we are now. I'll admit that the Federal Reserve got away with sort of not printing money for longer than I expected. I say "sort of" because the Federal Reserve's intervention in the housing market was essentially the same as printing money. But I did think they'd get back to printing money to buy federal debt much sooner.

However, the Fed's intervention in the housing market essentially ended at the end of March and Obama's stimulus package continues to fail, so it's not surprising that just over four months later the Federal Reserve has to once again resorted to printing money to pay for Obama's spending.

And there should be no doubt that this is to pay for Obama's spending rather than much of any other reason:

That could help nudge down long-term rates on mortgages and corporate debt but wouldn't have a dramatic impact...

Economists doubt the Fed can turn around the economy on its own. Some believe additional help from Congress is needed.


"Additional help from Congress" means more government spending. Apparently the Federal Reserve doesn't think that pumping money into the economy via the housing market is going to make people spend money; so they want to prime the pump and make another $100 billion available for Congress to spend directly.

It's looking increasingly like "Stimulus 2" is coming soon.

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