Here’s a headline that should disturb your sleep:
Printing money at the Fed, printing bonds at the Treasury. Very cozy.
To find a buyer of all the government debt he’s printing, Treasury Secretary Tim Geinthner doesn’t need to travel to China, just walk a mile over to the Federal Reserve building.
With the Federal Reserve set to print $600 billion in order to buy Treasury securities, it is essentially funding the $1.2 trillion deficit for the next six months, according to Ed Yardeni, President of Yardeni Research. It’s even more if you count the reinvestment of proceeds from its mortgage-backed securities portfolio.
“You essentially have the world’s largest hedge fund down the street from the world’s largest prime brokerage,” said Yardeni, who has held positions at both the Federal Reserve and the U.S. Treasury. “I think that QE-2.0 is a very bad idea because it increases the odds of a trifecta of bubbles in stocks, bonds, and commodities.”
Bubbles are what you have when you forgo real productive investments. Here’s some totally, completely unrelated news:
The dollar fell against its higher- yielding peers after the Federal Reserve said it will buy an additional $600 billion of Treasuries to boost the U.S. economy.
Stock market hits record high — in India:
India’s benchmark Sensex index has closed at a record high, after the Federal Reserve’s decision to buy US$600 billion in government bonds to shore up the shaky U.S. recovery drove a surge of foreign investment into the world’s second-fastest growing major economy.
The benchmark Sensex index closed up 2.1 percent, at 20,893.6 points, just topping a January 2008 closing high of 20,873.33, according to Bombay Stock Exchange data. The index touched an intraday high of 20,917.0, just 290 points of its January 10, 2008 all-time intraday high.
“It’s the Fed’s quantitative easing,” said Nandan Chakraborty, head of research at Mumbai’s Enam Securities. “It’s great for India.”
Gold hits new record high on inflation concerns:
Gold prices set a fresh record Thursday as investors flocked to the safety of the precious metal amid escalating inflation and currency worries.
. . . The Federal Reserve’s $600 billion monetary stimulus, announced Wednesday afternoon, helped jump start gold’s rally Thursday. The program aims to stimulate the economy by expanding the money supply, but market participants are concerned the excess liquidity will drive up inflation and depreciate the dollar without generating growth.
If this keeps up, the conspiracy kooks are going to stop sending me “proof” that President Obama was born in Kenya and start whispering about his secret life in Zimbabwe.
– Kevin D. Williamson is deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, to be published in January.