$600 Billion

The day after Election Day 2010, the Federal Reserve buys $600 billion of United States Treasury bonds.


“Thomas M. Hoenig, the president of the Federal Reserve Bank of Kansas City, dissented, as he has at every meeting this year. Mr. Hoenig ‘was concerned that this continued high level of monetary accommodation increased the risks of future financial imbalances and, over time, would cause an increase in long-term inflation expectations that could destabilize the economy,’ the Fed said in a statement….

But there are several significant risks. The new actions are likely to further drive down the value of the dollar, which as fallen about 7.5 percent since June against the currencies of major trading partners. That could exacerbate the trade and exchange-rate tensions that have threatened to unravel cooperation among the world’s biggest economies.

Moreover, the Fed is exposing itself to the risk that the assets it has purchased, like the $1 trillion in mortgage-related securities on its balance sheets, could shrivel in value as interest rates rise. That could reduce the amount of money the central banks turns over to the Treasury each year, and expose the Fed — which has been attacked for failing to prevent the 2008 financial crisis — to further criticism….

The Fed lowered short-term interest rates to nearly zero in December 2008, and subsequently bought $1.7 trillion in mortgage-backed securities and government securities, a program that was phased out last March.

Only months ago, the Fed was talking about returning to normal monetary policy and discussing the timetable for eventually raising interest rates and tightening the supply of credit, as it would normally do after a recession has ended.

But this recession and its painful aftermath have been anything but normal. Global financial markets were set back in the spring by the European debt crisis in Europe, and over several months, Fed officials gradually became convinced that their only option was to step back in again.”

source: http://www.nytimes.com/2010/11/04/business/economy/04fomc.html?src=ISMR_HP_LO_MST_FB

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