Wackonomics

[alexamenos]

As Rates Race to Zero, Printing Presses Gear Up

When the Federal Reserve policymakers decide on interest rates Tuesday, investors will probably look one step beyond their decision, to gauge how much money will the Fed be willing to print once it is out of rate ammunition....


Printing Money

The Fed has already moved on from using interest rates as a monetary policy tool and the next fed funds target rate after the Dec. 16 meeting is "almost academic," ING economist Rob Carnell said.

The Fed's balance sheet has expanded to more than $2 trillion, made up of collateral received in exchange for liquidity provision, or loans of Treasurys.

"In our view, this is, for want of an alternative description, 'printing money'," Carnell wrote in his research. "And our assumption is that there is more of this to come."

Besides mortgage-backed securities and asset-backed securities, the Fed will purchase Treasurys, corporate paper and even stocks to provide much needed cash, he predicted.

"The Fed's only option is effectively to 'print money' by crediting the reserve balances held by commercial banks at the central bank," Ashworth also said.

Buying Treasurys would be the biggest weapon that hasn't been deployed yet, as such a policy means the Treasury could pump into the economy as much cash as it needs.

"There's no limit to the amount of money that the Fed can print and Congress can spend," Ashworth said.

But for some, that's a scary thought, as the amount of U.S. government debt is already staggering.

"Nobody really knows how these policies will work out," Stoeferle said. "If it were another country, the U.S. should probably declare bankruptcy."

I would say that a lot of people have a very good idea how these policies will work out -- the long run value of a fiat currency is zero -- the question is not how these policies will work out, but how long it will take.