What hath the Fed wrought?

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Today's announcement that the private corporation called the Federal Reserve Bank (affectionately, the FED), which has the power to create money, will buy up to $300 billion worth of so-called "bad" mortgages, and United States Treasury bonds probably doesn't mean much to Joe and Jane six-pack.

People who follow the esoteric study of economic policy call it "monetizing the debt." What the heck does that mean?

Simply put the U. S. government, or its sponsored enterprises like the Federal National Mortgage Association (FannieMae), borrowed money which was created by issuing government bonds. OK so far that is like borrowing $30000 for an automobile and only being liable for the interest until you sell the car. So the "load" on your income is only the annual interest -- at 10% that would be $3,000. On a year to year basis -- you can afford the interest payments so nothing much changes in life.

What the FED has done is create some additional money to purchase the bonds. They are directly devaluing the greenback in your pocket. If you believed it buys a dollar's worth of goods today, after the FED action it buys maybe 90 cents worth of goods, simply because there are more of them, those which were created to buy the debt (bonds, mortgages, etc.).

In the case of your car loan, discussed above, it is as if you decided to pay it back with "personal consumer dollars" which you created all by yourself at home maybe on your computer. Now you can't really do that, but if you could, people would demand more of your personal "consumer dollars" because they would know you had just monetized your car value, or created more of them to buy the car.

That is what the FED is doing, and there are rumors that the bank plans to keep this up into the trillions of dollars.

Its called the "Zimbabwe solution" because it leads to enormous inflation.

I hope you are prepared. Here is a January 30, 2009 headline from the Sydney (Australia) Morning Herald: 231 million per cent inflation: Zimbabwe dumps currency. Are you ready for this?