Friday, March 20, 2009

Fed's Plan to Fix Economy - Print Money, Weaken Dollar

On Wednesday, Federal Reserve Chairman Ben Bernanke announced the Fed's new plan to save the economy. In the plan, which went largely unanalyzed by the mainstream media, Bernanke proposes the Fed buy up America's debt in the form of US treasuries. To generate the funds needed to buy its own debt, the Fed will crank up the printing presses.
"With the purchases of Treasuries and housing debt, Bernanke is effectively using the Fed’s powers to print money and aim it where he and other officials believe it will have the greatest impact in lowering borrowing costs."

As a result of the announcement 10-year Treasury yields had their biggest drop since 1962 and the US Dollar plummeted against the euro.
"[T]he Federal Reserve's sudden decision to print $1.2 trillion and pump it into the economy, a move that also triggered warning signs of inflation — a weaker dollar and the highest oil prices of the year."[1]

Doug Dachille, chief executive officer of First Principles Capital Management, said the Treasury Department under Clinton tried a to buy back America's debt in much the same way during budget surpluses and it failed to have the impact on the economy the Fed is hoping for now.

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