Bloomberg News reports that the Federal Reserve has "bought" $1.7 Trillion dollars of Federal Government Securities (Bonds) through March of 2010. The Federal Reserve will buy an additional $600 Billion of Federal Government securities through next June of 2011. Combine these "purchases" with some $300 Billion of Mortage bonds the Federal Reserve has already "purchased" and you have a reported $2.6 Trillion dollars added into the economy. Please bear in mind that these amounts are what has been reported by the Federal Reserve. The books of the Federal Reserved are closed to the public so we really have no knowledge of any other Federal Reserve "purchases". To gain perspective to this number, I just paid $2.88 per gallon of gasoline. $2.6 Trillion is:
$2,600,000,000,000 and will buy a lot of gasoline. It's unclear what this "created out of clear air" money means, but it can't be good, can it? For example, the Federal Government issues a Bond for X amount of dollars and those dollars go to pay for highway construction or whatever. That money goes into the economy as wages paid and materials are bought. If the Federal Reserve buys the Government debt bonds they are in essence creating the money that goes into the economy. Bear in mind this money was not created by productive enterprise so it has no value other than the value assumed by combining with real money and thereby reducing the value of all dollars. So what happens when when the Bonds bought by the Federal Reserve mature? Does the Federal Government pay back the Federal Reserve back with tax dollars? Does anyone really know what is happening here?
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