On the "Quantitive Easing" program...

You may have seen that Bernanke and the Fed announced a "quantitative easing" program today. This is historic for the US...somewhat expected during the last 3 months but historic from a historical perspective. In essence they announced that over the next few months their going print USD 300bn in money to buy our own debt. Not entirely different from you photocopying your dollar bills and using them to go pay off your credit cards. But in this case they sell short term treasuries to buy up long term treasury bonds. this is in effort to reduce long term interest rates in the economy...with the aim to lower interest costs for everybody across the board, so companies and individuals have more after interest cash flow (to go by more junk to support the economy!). For example, mortgage rates are tied to long term treasury rates...so if the Fed buys up long term treasuries that pushes the price of those bonds up and yields (interest rates) down across the board. Could cause (in the short term) mortgage rates to come down a fair bit. They've been creeping back up to 6 percent and this could get them down to 4.5 percent. That would mean savings for folks that might see their rates drop. Great. But its horrible morality and fiscal policy. Its ongoing government intervention with normal market dynamics and that has the reverse effect in the long term. Its going to put downward pressure on value of the dollar, which dropped big against the Euro after this news. When they announced this also Gold, which was down 2.5 percent earlier in the day, jumped up to positive 2 percent in one hour. That's what happens when the Fed announces they will publically trash the dollar, which is what "quantitative easing" is. Britain is doing it to. Its a global race to trash your currency. Its an effort to re-inflate the asset bubble because folks can't bear the thought of deep recession...a depreciating currency typically means asset values (on paper) go up and debt become easier to pay off. Since our government has too much debt that's what our government thinks will solve the problem. So they continue...trying to prop up a dead horse, hoping if they can then it'll appear not so dead. What needs to happen is bad companies need to fail, asset prices (including homes) need to drop until people can afford them and we need to stop throwing good money (that we're borrowing from our children) after bad.