[Jotapay]

Yikes. Looks like it's a little bit closer to "game over, man".

Jan. 16 (Bloomberg) -- The Federal Reserve may purchase Treasuries within the next few days or weeks as it broadens its policy beyond interest rate cuts to ease credit conditions amid the worst recession in 25 years, according to UBS AG.

http://www.bloomberg.com/apps/news?pid= ... refer=home

http://www.tickerforum.org/cgi-ticker/a ... indnew#new

[Sixstrings]

So the US sells treasuries to raise money, and has started buying their own treasuries to raise money?

Doesn't make sense.. is this "printing money" then?

[Jotapay]

Unless I'm dreadfully wrong, it will collapse the dollar. The bond market isn't reacting much to this, however.

[PrestonSturges]

This has been so widely predicted that the markets have probably factored it in.

However, what does this mean to human beings and things like food on the shelves?

If it means the world doesn't want dollars anymore, oil will be sky high again in no time flat. That being said the value of the dollar has been a mystery of late.

[pedalling_faster]

So the US sells treasuries to raise money, and has started buying their own treasuries to raise money?

Doesn't make sense.. is this "printing money" then?

how is it not printing money ?

unless P. Bush is secretly a PO member, most of the people here are pretty smart. if we can program a computer or teach a class or raise kids, but have trouble understanding how money is created, it might be because the process is not designed to be transparent.

perhaps more important than the issue of printing money, is the demand for US $. once people start perceiving that the US $ is no longer what you try to acquire if you are following a "flight to safety" pattern in your investing & saving, then $ become cheaper.

it's like computers at Circuit City & Best Buy. everybody knows Circuit City is about to have a big liquidation sale, that doesn't help Best Buy sales at all.

OK, that may not be a perfect explanation.

[Tyler_JC]

The Fed buying T-bills essentially means they are printing money.

However, they aren't going to immediately crash the dollar. If you look at money supply growth rate in recent months, there is plenty of room to run the printing presses before you risk runaway inflation.

[CrudeAwakening]

The article is discussing the possibility of Fed purchase of longer term Treasury bonds, rather than T-bills, which it has traditionally bought. The aim is to bring down long-term interest rates by printing money.

If the bond market sees the inflationary potential in this action, there could be downward pressure on Treasury bond prices, causing the Fed to have to buy more and more debt itself to prop up prices. Could get nasty.

[smallpoxgirl]

The article is discussing the possibility of Fed purchase of longer term Treasury bonds, rather than T-bills, which it has traditionally bought. The aim is to bring down long-term interest rates by printing money.

That's not quite accurate. The goal is to drive money out of T-Bills and hopefully back in to the bond markets. The yields on shorter term T-Bills have gone just about to zero over the last couple of months, but the yields in the longer term T-Bills have remained comparatively high. This is an attempt to drive down the yields on longer term bills in the hopes of pushing that money into corporate and municipal bonds which are still frozen tight. It does imply increasing the money supply. That's not necessarily a bad thing. We went into a pretty steep deflationary tail spin from July to November and the dollar index is still holding at a pretty high level. As long as it's done with caution, dropping the dollar index a bit might not be a bad thing at all. The key danger is that returning confidence in the economy could reverse the monetary situation and slam us rapidly into inflation.