The Fed’s Next Price Fixing Scheme and You
The Intel Hub
March 13, 2012
Free markets these days are always and everywhere under assault. Europe, China, Japan, and the United States, among others, are delving into extreme economic intervention. For whatever reason, uplifters around the globe have taken it upon themselves to meddle in people’s lives on a grand scale.
Last week, for instance, it was revealed that greater price-fixing operations are being considered. Regrettably, these plans would be more intrusive than commanding the price of Peruvian bananas or rents on New York City apartments.
Unfortunately, the latest scheme being considered would do much, much more. In a roundabout way it would affect the price of all goods and services. For it would fix the price of the economies most important commodity…its money. Here are the particulars…
According to the Wall Street Journal, the Federal Reserve is mulling over a new bond buying program. Like past quantitative easing operations, the Fed would print money to buy long-term mortgage bonds and Treasuries. However, this next experiment would be a bit different…
Under the Fed’s new brainchild, they would print money to buy long-term bonds and then borrow the money back from investors for short, approximately 1-month periods. By doing so the freshly printed money would be pulled back out of the financial system, which would restrain inflation expectations. The Wall Street Journal referred to these money games as “sterilized” QE. We call it “writing checks to each other.”
In theory, sterilized QE would allow the Fed to lower long-term interest rates and encourage more credit based spending by households and businesses. By artificially lowering the price of money the Fed believes they will stimulate demand, and boost economic growth from its dreary doldrums.