The FOMC has finished up its March 2013 meeting and released its infamous statement. In short, the news is that there is no news. It is full steam ahead for the Fed. It will continue to wreck our money and our economy by creating $85 billion per month out of thin air.
The FOMC statement said, “Inflation has been running somewhat below the Committee’s longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices.” Apparently the “Committee” hasn’t looked at the stock market. But since that is not considered a consumer good, it doesn’t count, just like the housing bubble didn’t count.
There was one dissenting vote against the FOMC policy. Esther L. George voted against the action out of concern for future risks and that it could cause an increase in long-term inflation expectations. Apparently the others don’t share the same concern, or at least not enough to vote against increasing the monetary base by $85 billion per month.
The statement also included language about keeping the federal funds rate at between 0 and .25 percent, as long as the unemployment stays above 6.5% and inflation expectations remain below 2.5%. Of course this whole thing means almost nothing, since the Fed can just change its stance on this at any time. In addition, the Fed isn’t even directly keeping the federal funds rate low now anyway. It is the massive excess reserves held by banks that is keeping this rate down. With huge reserves, there is little need for overnight borrowing.
So for now, we can continue to expect the Fed to help fund the government’s deficit to the tune of $45 billion per month. We can also expect the Fed to continue to bail out the banks. The Fed will create $40 billion per month in new money to buy mortgage-backed securities that are undoubtedly worth a lot less than what is being paid for them. The Fed calls it supporting the housing market. I call it a bank bailout. Who needs a Cyprus bank seizure when you can simply do it this way and conceal it?
This will continue to exacerbate the whole problem. All of this monetary inflation is causing a further misallocation of resources. It will all have to be corrected at some point. The day of reckoning has already hit Greece and other parts of Europe. The day of reckoning in America is yet to come, but it will come. Prepare yourself.