The IUSB Vision Weblog

The way to crush the middle class is to grind them between the millstones of taxation and inflation. – Vladimir Lenin

This is bad: Federal Reserve Buys $1 Trillion in Treasury Bonds …..this is why it hurts you. – UPDATED!

Posted by iusbvision on March 19, 2009

UPDATE – Glenn Beck gives this analysis and I must say he did a great job. By the way, when the stack goes from $1 Billion to $1 Trillion, the stacks of money go from single stacked to double stacked. If they stayed single stacked that field of palets of money would be doubled in size.

We have all heard of an IOU, well this is an IO-Me. The dollar fell fast and gold shot up.

When the Federal Reserve/government sells debt they do it with bonds. China, you , me, investors, other banks etc buy these bonds and earn modest interest on them. They have just bought their own bonds which creates money out of thin air. They are taking an ‘IO-Me’ out of one pocket, use that to print up the money and put that money in their other pocket to use and spread around.

This is usually seen in markets as a panic move and makes the dollar worth less.

Bloomberg News:

March 19 (Bloomberg) — The dollar weakened beyond $1.37 against the euro for the first time since January on bets the Federal Reserve’s plan to buy Treasuries will push down yields on U.S. assets and prompt investors to seek returns elsewhere.

The U.S. currency dropped to the lowest versus Norway’s krone since October and depreciated to a two-month low against the Australian dollar as the Fed began flooding the market with greenbacks. Goldman Sachs Group Inc. raised the target on a bet against the dollar to $1.40 versus the euro a day after the greenback fell the most since the single currency’s 1999 debut.

UPDATE II – China calls for new reserve currency (drop the dollar).

Financial Times of London:

China’s central bank on Monday proposed replacing the US dollar as the international reserve currency with a new global system controlled by the International Monetary Fund.

In an essay posted on the People’s Bank of China’s website, Zhou Xiaochuan, the central bank’s governor, said the goal would be to create a reserve currency “that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies”.

Analysts said the proposal was an indication of Beijing’s fears that actions being taken to save the domestic US economy would have a negative impact on China.

“This is a clear sign that China, as the largest holder of US dollar financial assets, is concerned about the potential inflationary risk of the US Federal Reserve printing money,” said Qu Hongbin, chief China economist for HSBC.

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