With barely a murmur of dissent in Washington, the money printing continues apace.
THEY demanded the Fed ”deliver”. The consequences of ”failure” were ”dire”, they cried. Don’t let us down! It was the grandest ”Daddy, I want a pony” act in history. And this week, Fed chairman Ben Bernanke obliged the denizens of Wall Street with ”the kitchen sink”, as one pundit dubbed it.
”QE3-plus” is the ultimate money-printing bonanza. And they had the cheek to dress it up as a boon for the jobless. In reality, the banks get to shovel their lame mortgage debts plumb into the lap of the taxpayers at the rate of $US40 billion ($38.1 billion) a month.
This time the Fed is buying, not just government bonds, but the mortgage-backed securities (MBS) that are clogging up Wall Street balance sheets.
We have a situation in which the Fed is privately owned by the banks. The banks have bought off Washington with their ”donations”. Washington, in turn, has the Fed to buy the very debts it creates.
The buying forces interest rates down, and the government’s cost of borrowing, to boot. And so they expand the supply of money.
Already, the Fed’s balance sheet has tripled to $US2.8 trillion in four years. Now the plan is to spend almost another half-a-trillion a year, relieving the Fed’s shareholders of their debts, even at a premium. Yes, the taxpayer is likely to pay par. Should all this lead to rampant inflation, as it probably should, the value of everybody’s money will fritter away.
The greater risk is to food inflation and starvation in the developing world. Corn, wheat and soybean prices have already run up hard.
Meanwhile, 40 million MacMansions lie empty, there are 46 million Americans on food stamps, and real unemployment closer to 18 per cent than 8 per cent. The last two rounds of QE stimulus failed to solve the job crisis, and now the Fed has doubled up on a losing bet, apparently while showing its hand at the same time.
What other cards does it now have to play? Surely rock bottom interest rates and a 24/7 printing press is the full deck. No matter. There’s barely a murmur of discontent from Washington.
Incidentally, its all not bad for Australia, and particularly one Andrew ”Twiggy” Forrest in the immediate short-term at least, as a bellicose debasing of paper currency tends to put a rocket under hard commodities.