The Federal Reserve’s decision to fire up the printing presses to the tune of $1 trillion continued to wash over world financial markets on Thursday, pushing the price of government bonds higher and dragging down the value of the dollar.Actually, it's more like 1.2 trillion.
This is Yves Smith's version, entitled, appropriately enough, On the Fed's 'Shock and Awe', from the blog Naked Capitalism:
When some deemed the Fed's move today to expand its balance sheet by as much as a trillion dollars plus as "shock and awe", I recalled that when that term was first used, at the beginning of the US invasion of Iraq. The notion was a display of superior force would lead to quick capitulation.Hardly any of the professional economists seem very happy about this. But I'm not an economist, only a bewildered -- and bemused -- poet. So I have some very simple and unsophisticated questions for our respected Federal Reserve Chairman:
We know how well that theory worked. And I suspect the unintended Iraq-Fed analogy is apt.
Let me focus on the Treasury part of the equation, but with a recap first. The Fed announced today that it would buy up to $750 billion in Agency MBS this year (in addition to an earlier commitment of $500 billion) and up its purchases of Agency bonds from $100 billion to as much as $200 billion. It also said it would purchase up to $300 billion of longer dated Treasuries over the next six months.
1. Since it is possible for the United States to settle $1.2 trillion worth of debt by "printing money," then why is it that the US government still feels the need to tax its citizens? Why can't all the monies needed by our government simply be printed?
2. Why can't a single -payer, government funded, health care system be implemented in the US on the basis of "printed" money? Why hasn't this already been done, since the lack of a viable health care system in the US has for years been regarded as an emergency. Isn't the physical and mental health of our citizens at least as important as the financial health of the banks?
3. How is such a policy different from a Ponzi scheme of the sort perpetrated by Bernie Madoff? Don't all such schemes involve adding ever greater sums to the pool, either by sucking in new investors or borrowing money, rather than actually investing money in some productive enterprise?
4. Finally, what, exactly, is your intention? Last fall we were told there was a one-time emergency, that billions needed to be pumped into the financial system immediately to stave off a complete collapse of that system. We were also told that once the system was stabilized we could then work on developing more carefully thought through programs to repair it, so we would never have this problem again. Are we still living in the same, original state of emergency? Is the current "shock and awe" an extension of what was done last fall? And if so, how will we know when the ongoing emergency is over, so we can finally begin to plan rationally again? And if not, then what exactly is the logic behind the new plan, how is it going to repair our economy and ensure that it remains stable in future years and for future generations?