Michelle Malkin » The David Copperfield School of Economic Recovery

The David Copperfield School of Economic Recovery

By Michelle Malkin • March 19, 2009 08:59 AM

The Federal Reserve performed another empty magic trick yesterday to the tune of $1 trillion.

While the Kabuki Theater of AIG outrage played out in Washington, the Fed was pulling its David Copperfield School of Economic Recovery routine. They’ll be printing up a trillion buck and “pumping it into the U.S. economy”…by buying up bonds and mortgage securities…sold and backed by the government. Voila:

The Federal Reserve sharply stepped up its efforts to bolster the economy on Wednesday, announcing that it would pump an extra $1 trillion into the financial system by purchasing Treasury bonds and mortgage securities.

Having already reduced the key interest rate it controls nearly to zero, the central bank has increasingly turned to alternatives like buying securities as a way of getting more dollars into the economy, a tactic that amounts to creating vast new sums of money out of thin air. But the moves on Wednesday were its biggest yet, almost doubling all of the Fed’s measures in the last year.

The action makes the Fed a buyer of long-term government bonds rather than the short-term debt that it typically buys and sells to help control the money supply.

The illusion melts:

“In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability,” the central bank said.

As expected, policy makers decided to keep the Fed’s benchmark interest rate on overnight loans in a range between zero and 0.25 percent.

But to the surprise of investors and analysts, the committee said it had decided to purchase an additional $750 billion worth of government-guaranteed mortgage-backed securities on top of the $500 billion that the Fed is already in the process of buying.

In addition, the Fed said it would buy up to $300 billion worth of longer-term Treasury securities over the next six months. That would tend to push down longer-term interest rates on all types of loans.

All these measures would come in addition to what has already been an unprecedented expansion of lending by the Fed. The central bank also said it would probably expand the scope of a new program to finance consumer and business lending, which gets under way this week.

In effect, the central bank has been lending money to a wider and wider array of borrowers, and it has financed that lending by using its authority to create new money at will.

Mike Shedlock weighs in on Bernanke’s “grand experiment:”

Note the losing battle Benanke is fighting: attitudes. The Fed has become the lender of only resort as opposed to the lender of last resort. Bernanke cannot force banks to lend nor can he force companies to hire or if they do hire the wages that will be paid.

Wage destruction continues unabated, and if Bernanke does succeed in driving prices higher, he just might ask himself, how anyone is going to pay the bills.

Deflation is a Benefit, Not a Curse

Deflation is a benefit, not a curse. It only appears to be a curse through the myopic eyes of Bernanke who is worried about the destruction of debt on the balance sheets of financial institutions. However the time to worry about balance sheets is not now. The time to worry about balance sheets was in 2002 when something could have been done about it.

Now the best thing to do is let things play out. The economy will bottom on its own once prices fall far enough.

Posted in: Subprime crisis

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#102

On March 19th, 2009 at 1:08 pm, RobM1981 said:

I’m not sure that Rabid’s advice is in jest.

What a complete train wreck.

Get your pitchforks and torches ready, gang…
#103

On March 19th, 2009 at 1:51 pm, AlohaGuy said:

Get ready for it folks. Hyperinflation combined with economic stagnation are heading this the way.

Did you all buy gold when Bear1909 and I mentioned it?

Saw some Harvard Econ Prof on PBS (I know, I know) who basically said that it hasn’t sunk in yet to people how really, really bad this will probably be.
#106

On March 19th, 2009 at 3:20 pm, LaMonte said:

NASDAQ
Instead of little quibbles over particular days and opening vs closing numbers, why not take a peek at an entire year [one in which a certain candidate was nominated, then elected].
The slippery slope slide occurred before January.
Folks tell me these markets are forward looking.
I got my picture data here:
http://www.google.com/finance?client=ob&q=INDEXNASDAQ:COMPX
#107

On March 19th, 2009 at 3:33 pm, emjem24 said:

chapoutier said:
Don’t denigrate the term “March Madness” RedPill. It is pure and good and beautiful.

Perhaps, if so many Americans weren’t “glued” to the tube to watch overhyped athletes play ball until they get a better deal in the pros, then this country wouldn’t be in the mess it is now.

I really hate “March Madness.” I hate the fact that a lot of these “athletes” use college to advertise their “talent,” yet don’t finish the education that they were supposedly getting in the first place. The NCAA is such a lie on so many levels it’s not funny. Many of these athletes get “help” or do the bare minimum in their classes until they get a better deal.

As usual, Americans have their priorities skewed. “March Madness” showcases would-be, prospective pros not interested in finishing their education and attracting PR for their overpriced colleges and universities. The whole thing is maddening.

Sorry sports fans…

/rant off
#108

On March 19th, 2009 at 4:20 pm, chapoutier said:

I hate the fact that a lot of these “athletes” use college to advertise their “talent,” yet don’t finish the education that they were supposedly getting in the first place.

Did you know that the graduation rate for NCAA Division I athletes is almost 80%? Which is higher than the overall graduation rate?
#110

On March 19th, 2009 at 10:06 pm, Salt said:

On March 19th, 2009 at 4:20 pm, chapoutier said:

Did you know that the graduation rate for NCAA Division I athletes is almost 80%? Which is higher than the overall graduation rate?

What’s the percentage of that 80% that legitimately earned those degrees?
#111

On March 20th, 2009 at 5:14 am, twofoot said:

What’s the percentage of that 80% that legitimately earned those degrees?

And of the ones that are legitimate, how many are physical education degrees?
#112

On March 20th, 2009 at 9:02 am, chapoutier said:

What’s the percentage of that 80% that legitimately earned those degrees?

I am sorry that you guys have let your perception of a student athlete be tainted by the very very very small percentage that are stars, headed pro, in big name programs.

I in fact myself was an NCAA Division I athelete. I will let all of you speculate as to the sport.
#113

On March 21st, 2009 at 12:38 am, Danceswithdachshunds said:

Bowling?
#114

On March 21st, 2009 at 5:25 pm, chapoutier said:

Bowling?

Come on…I am an elitist, remember?

FWIW, my best bowling game is a 182.