“Helicopter” Ben Starts Printing Up a Storm

Just a quick note to pat myself on the back. In a prior blog I wrote:

f Roger is right, and the banks are no longer able to function as the traditional engine of inflation, then Iā€™m sure Ben is prepared to either go around them to offer credit to consumers directly. Such a scenario could take place in a variety of ways, with the most likely being that Fannie Mae and Freddie Mac start offering 4% 40 year mortgages and refinances straight to consumers. Since both of these lending institutions have now been nationalized, relatively few people would need to be involved in that decision. Fannie and Freddie create the money to give to consumers, and the Fed buys the notes. Voila, inflation.

Today, gold rallied strongly as Ben announced that the Fed:

will spend up to $300 billion over the next six months to buy long-term government bonds, a new step aimed at lifting the country out of recession by lowering rates on mortgages and other consumer debt.

At the same time, the Fed left a key short-term bank lending rate at a record low of between zero and 0.25 percent…

The Fed also said it will buy more mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac to help that battered market. The central bank will buy an additional $750 billion, bringing its total purchases of these securities to $1.25 trillion. It also will boost its purchase of Fannie and Freddie debt to $200 billion.

“This is not only going to keep mortgage rates low for a long period of time,” said Greg McBride, a senior financial analyst at Bankrate.com. “The mere announcement may produce a honeymoon effect and bring mortgage rates down to even lower levels in the coming days.”

In addition, the Fed said a $1 trillion program to jump-start consumer and small business lending could be expanded to include other financial assets.

The program ā€” which is rolling out this week ā€” currently is focused on spurring lending for autos, education, credit cards and loans for business equipment. The government already has announced an expansion to include commercial real-estate assets. Any broadening of the program would be beyond that area.

OK folks, let’s count it up: $300B for Treasuries, $750B for mortgage backed securities, $200B for Fannie and Freddie Mac debt, and an extra $1 T for consumer loans. That’s roughly two and a quarter trillion dollars of money being printed. And since we’re talking about printing money and trading it to the banks for their troubled assets, we’re looking at 10 to 1 in terms of money supply inflation after the effects of fractional reserve banking. And that’s not including the activities of the Federal Government for another $1.75 billion or so.

Anyone still think long term US Treasuries are the place to be going forward? Welcome to the era of massive inflation. People doubted me, but I knew Ben wouldn’t let me down. He didn’t get the name helicopter for nothing!

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