To try to solve the U.S. unemployment and under-employment problem impacting 25 million Americans and their families, the Fed announced it will start buying U.S. mortgage securities of up to $40 billion a month, indefinitely. It will also keep interest rates at near zero until at least 2015. And it will create as much money as necessary to do these things. This Fed announcement sent stock markets soaring for investors love bailouts.
But what are the consequences of this Fed action?
1) The Fed has been doing similar things since 2008, with disappointing results.
2) By keeping interest rates artificially low, it deprives hundreds of millions of savers of any real return on their savings, which robs the economy of trillions of dollars in income. This in turn deprives the government of tax revenues it so desperately needs and deprives retirees of income on the savings they worked a lifetime to accumulate.
3) That lack of income costs charities donations they otherwise would have received.
4) The Fed's actions distort the U.S. government debt by allowing it to skyrocket with for now, lower interest rates, which help to mask how bad it really is
5) The Fed is again printing vast sums of money it doesn't have to conduct another huge "stimulus" program, thus setting the potential for major future inflation, which could destroy the value of the U.S. dollar.
Yet the U.S.'s severe financial problems are solvable. But because the problems are many years in the making and still growing worse, it will cost us Americans, much higher taxes and we will receive far less government services than those promised to us.
But because most Americans don't want to sacrifice to pay the price of their government's massive spending, and politicians don't want to tell them how bad the situation really is, nor act on it, the Fed is left to offer the pitiful practices it now is, as it fights the battle alone, a battle in its current form it is going to lose.
Dick
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