Don’t underestimate the power of printing money

Quantitative easing is now the main policy course for the U.S. Federal Reserve.  The U.S. Federal reserve is buying $300 billion in long-term U.S. government debt in order to keep interest rates low.  As a result, the rally in Treasuries that I have long anticipated is upon us – it is the most powerful rally I have ever witnessed.

As Marc Faber has said, “don’t underestimate the power of printing money.”


The Federal Reserve plans to buy $300 billion in Treasury securities and acquire more mortgage and agency debt in an effort to bolster housing and hasten the end of the recession.

“To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage- backed securities,” the Federal Open Market Committee said after a unanimous vote in Washington today. “Moreover, to help improve conditions in private credit markets, the committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months.”

Chairman Ben S. Bernanke is opening a new front in monetary policy after unemployment climbed to 8.1 percent and economists forecast the economy will shrink through the middle of the year. Fed officials also kept the benchmark interest rate at between zero and 0.25 percent and said it will consider expanding the Term Asset-Backed Securities Loan Facility to include “other financial assets,” the statement said.

“We are not even close to the bottom and therefore the Fed is engaging in a massive quantitative easing,” William Poole, former president of the St. Louis Fed, said in an interview today with Bloomberg News. “We still have a very serious recession in front of us,” said Poole, now a senior economic adviser to Merk Investments LLC in Palo Alto, California, and contributor to Bloomberg News.

Historic Rally

Treasuries surged, sending benchmark 10-year note yields down to 2.50 percent from 3.01 percent late yesterday, the biggest decline since 1962. The Standard & Poor’s 500 Stock Index jumped 2.9 percent to 800.66 at 2:54 p.m. in New York.

I seriously doubted Federal Reserve Chairman Ben Bernanke’s helicopter piloting skills, but he is now showing he can fly with the best of them. See reactions on Bloomberg Television below.


U.S. Treasuries –
Fed to Buy $300 Billion of Longer-Term Treasuries –

Related articles
FRB: Press Release – FOMC Statement — March 18, 2009

  1. Ranger Turtle says

    At least the Fed can print more money needed to get us out of this mess. Can you imagine the Congress/Public reaction if the Treasury asked for +1T$ MORE for bailouts?
    I believe that’s whats behind the Treasury’s ‘soft shoe shuffle’ plan. They only have enough money for emergencies, can’t politically get more money, and have asked the Fed and FDIC to bear most of the burden. Just an opinion.

    1. Edward Harrison says

      Ranger, I take a fairly dubious view of printing this much money. I am not sufficiently convinced that the Fed will be able to soak up this excess liquidity when the economy turns around. I certainly do believe, as you do, that an inflationary expansion is generally preferable to a deflationary collapse. However, I am very concerned that the Fed is going overboard here.

      The end result will be a lower us dollar, higher inflation down the line and higher commodity prices: read gold, oil and ag products. The irony is that if inflation feeds through to oil again as it did last year, we are going to have a nasty relapse down the line.

      In the meantime, we just need to watch how this plays out. It’s all pretty unprecedented.

  2. Sobers says

    Who knew economics was so easy? Just get out the trusty printing press and print your way to riches! By the way can I get a billion or two sharpish so I can buy some productive assets now? I think their supply is fairly fixed so I know which way the price will be going with all this funny money floating around. I’d like to get in now before economic reality kicks in in about a years time. Telegraphic transfer please, usual Swiss Bank account, password ‘Weimar’.

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