Watch my Right Hand

It’s more magical slight of hand in the finances of the government this week. While the White House and the media focus us on the ~$700 billion stimulus/pork plan being fussed over in Congress and the White House, the FED just created another one TRILLION dollars by slight of hand and tossed it out into the financial world. With barely so much as a mention in the media.

The International Herald Tribune covered the story.

“The Federal Reserve sharply stepped up its efforts to bolster the economy on Wednesday, announcing that it would pump an extra $1 trillion into the financial system by purchasing Treasury bonds and mortgage securities.

“Having already reduced the key interest rate it controls nearly to zero, the central bank has increasingly turned to alternatives like buying securities as a way of getting more dollars into the economy, a tactic that amounts to creating vast new sums of money out of thin air. But the moves on Wednesday were its biggest yet, almost doubling all of the Fed’s measures in the last year.”

Here’s what happened. Over the past years the government has borrowed trillions of dollars and issued IOUs for it. The government borrowed money and put into the ongoing expenses of running itself. It essentially took out a loan on the taxpayers’ charge cards. Now the FED is paying off one trillion dollars of those IOUs by turning on the printing presses.

What’s wrong with that? IHT continues:

“But there were also clear indications that the Fed was taking risks that could dilute the value of the dollar and set the stage for future inflation. Gold prices rose $26.60 an ounce, hitting $942, a sign of declining confidence in the dollar. The dollar, which had been losing value in recent weeks to the euro and the yen, dropped sharply again on Wednesday.”

That’s why we can’t just solve our problems by running more printing presses.

So, while we watch the stimulus bill wrangling in the magician’s right hand, the FED dwarfs the stimulus plan with a snap of the fingers on the left hand. See the full story here.

Watch out, people. Once the economy begins to recover we’re going to see the effects of this slight of hand. It will be roaring inflation.