September 14, 2012

Federal Reserve Quantitative Easing

I support the Fed's actions to buy large quantities of mortgage bonds, and potentially other assets, until the job market improves substantially. However, there will be consequences in the long term. When buying short-term treasuries, the theory is as the economy improves the Federal Reserve, to fight inflation, will pull money out of the economy by not extending their purchases of new securities.

This will not be as easy with the purchase of mortgage backed securities which have an average life of twelve years. An improving economy will result in interest rates rising and thus the value of mortgage backed securities decreasing. If they pull money out of the economy to hold inflation in check the Federal Reserve will incur significant losses that will need to be covered by the tax payer.

Don't blame the Federal Reserve for this needless loss. Blame the Republicans in Congress for not shouldering their responsibility to stimulate the economy by making sound investments in infrastructure that would create jobs. Also blame Congress and the White House for not going after banks for retribution for causing our near depression. This retribution would save the tax payers billions of dollars. Goldman's contributions to our politicians is paying off. More

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