Fed Reserve Adds Additional $1.2 Trillion To Debt In New Bailout – $750 Billion On Bad Mortgages

Mar 18, 2009 6:15 pm US/Central

Fed Launches New $1.2T Effort To Revive Economy

WASHINGTON (AP) ― With the country sinking deeper into recession, the Federal Reserve launched a bold $1.2 trillion effort Wednesday to lower rates on mortgages and other consumer debt, spur spending and revive the economy. [READ: To buy bad credit card debt, bad auto loan debt, bad student loan debt, and sub-prime mortgage debt and place those debts squarely on the backs of the American taxpayer – the additional $1.2 Trillion will increase the spending of the New Democratic Administration to just over $10 Trillon in just under 3 months – the average American family share now exceeds $100,000 per family]

The Fed’s plan to buy government bonds and the sheer amount — $1.2 trillion — of the extra money to be pumped into the U.S. economy was a surprise. [ The surprise – there is no end to the Government spending – if reckless excess spending cretaed our problems – just as the President claimed when he called for fiscal discipline – just what will this unbelievable excess lead to? Exactly how does quadrupling – increasing by 400% – the total Natoinal debt help the Country’s future?]

The Fed will spend up to $300 billion to buy long-term government bonds and an additional $750 billion in mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac. [The original plan to “modify mortgages, released less than two weeks ago – started as a $75  Billion program – in two weeks that amount has increased to $750 Billion – a 1000% increase. As this writer has noted in prior posts – there  is $7 Trillion Dollars in “toxic mortage exposure” in the global economy – the Government shows no sign that their is any end to Government spending in sight]   

“The Fed is clearly ready, willing and able to be the ATM for the credit markets,” said Terry Connelly, dean of Golden Gate University’s Ageno School of Business in San Francisco. [An ATM filled with taxpayer money – the Fed may print the money but the taxpayers create the wealth that backs those dollars up]

The dollar fell against other major currencies. In part, that signaled concern that the Fed’s intervention will spur inflation over the long run. [The additional spending also mandates additional taxation which in turn reduces the disposable income and savings of the working class and the profits and dividends received or paid by the business class – the spending will create a short term stimulus and will, unquestionably, create a significant long term detriment to future economic growth – over $10 Trillion in National Debt]

The Fed chief and his colleagues again pledged to use all available tools to make that happen, and economists expect further steps in the months ahead. [A classic CYA – there is no certainty that this will help acheive the desired results – in fact these steps may exacerbate the problem by spurring additional lending to the “same bad credit risks” that got us here in the first place – thus the need to keep the door open to yet additional spending despite the unprecedented spending of the last 3 months] 

Since the Fed last met in late January, “the economy continues to contract,” Fed policymakers observed in a statement they issued Wednesday. [READ: What we have done so far has not worked – rather than wait to see if a positive or negative result occurs lets just rush ahead with more of the same – even if that means “pouring gasoline on the fire”]

“Job losses, declining equity and housing wealth and tight credit conditions have weighed on consumer sentiment and spending,” they said.
The Fed’s announcement that it will spend up to $300 billion over the next six months to buy long-term government bonds was something that in January it had hinted it would do. But some officials had seemed to back off from the idea in recent weeks.
The goal behind all the Fed’s moves is to spur lending. More lending would boost spending by consumers and businesses, which would revive the economy. [Lending to “good” or “bad” credit risks is the question]

The Fed also said it would consider expanding another $1 trillion program that’s being rolled out this week. That program aims to boost the availability of consumer loans for autos, education and credit cards, as well as for small businesses. [Another Trillion – before the last has even been spent – to make loansds to whom – those just coming out of foreclosure or bankruptcy? Loans made whith whose tax money? Does the Treasury think this is “Monopoly Money”?]

Where does the Fed get all the money? It prints it.
The Fed’s series of radical programs to lend or buy debt has swollen its balance sheet to nearly $2 trillion — from just under $900 billion in September. The Fed’s balance sheet could grow to $5 trillion over the next two years.
The Fed has said it’s mindful of the risks of pumping more money into the economy, bailing out financial institutions and leaving a key rate near zero for too long. There’s the potential to plant the seeds for higher inflation, put ever-more taxpayer money at risk and encourage “moral hazard.” That’s when companies make high-stakes gambles knowing the government stands ready to rescue them.
But even in this best-case scenario, the nation’s unemployment rate — now at quarter-century peak of 8.1 percent — will keep climbing. Some economists think it will hit 10 percent by the end of this year.
The recession, which began in December 2007, already has snatched a net total of 4.4 million jobs and has left 12.5 million searching for work.

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