Author Topic: Reuters: Fed announces new U.S. mortgage-support program  (Read 1877 times)

SueDonim

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Reuters: Fed announces new U.S. mortgage-support program
« on: November 25, 2008, 07:20:24 AM »
Fed announces new U.S. mortgage-support program

http://www.reuters.com/article/marketsNews/idUSWEQ00042320081125

"WASHINGTON, Nov 25 (Reuters) - The U.S. Federal Reserve, in another massive life-support intervention for the U.S. financial system, on Tuesday announced a $600 billion program to buy mortgage-related debt and securities and a $200 billion facility to buy consumer debt securities,
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According to Bloomberg article http://bloomberg.com/apps/news?pid=20601109&sid=arEE1iClqDrk&refer=home yesterday (which I think includes this new info), we are up to over $7.7 trillion.  For context, the entire GDP of the US in 2007 was about $14 trillion.  So the government has pledged 1/2 of the nation's entire economic output for 1 year.  So far.

And as far as I know, only the so-called $700 billion (actually $850 billion) bail-out has been voted on by Congress (Not that I have any faith in them, but it is their job).

And all of this is pre-Big 3 bailout and pre-Obama stimulus (supposedly another $500-700 billion).

As I have said, with the velocity of money down (number of times a dollar is used in a year) due to weak economy, short-term view is deflation.  But when the economy bottoms out, the only way to prevent massive inflation is to clamp down the money supply hard, but that will continue to hurt economy.  Do the politicians have the stomach for that?  I doubt it.

The other problem is that, traditionally, Fed actions in changing money supply take about 18 months to impact the economy.  So to stop inflation, they would have to tighten money supply a year and a half in advance.  I doubt they have the foresight.  I doubt anyone does.

This point is finally being discussed in editorials.  At first, no one discussed inflation.  But over the past week, I have seen several that mentioned that inflation could be a problem in the long-run, but that the near-term deflation issue is bigger.  They are using analogies like, first keep the patient alive, then worry about the side-effects of the drug.

It also seems to me that gold pricing has de-linked from oil and now is linked to the stock market.  A couple of months ago, gold moved with oil, no matter the movements of the stock market or changes in the money supply.  But in the past 2 weeks, it looks like gold is ignoring oil and is moving with the stock market.  This appears to affirm the idea of inflation picking up as soon as the economy picks up.

Does not bode well.
« Last Edit: September 08, 2010, 08:17:21 PM by Sister Wolf »