Stocks Surge As Fed Prints More Money (Effectively)

Stocks surged today after the Fed said it would buy $300 billion in longterm Treasurys and hundreds of billions of mortgage-backed securities. Effectively, it’s like an interest rate cut, or printing more money. By increasing the amount of money in the system, banks will be able to borrow more cheaply and could prompt lower mortgage rates and more lending. Remember when we told you what “quantitative easing” was? This is it, folks, and it’s big.

Fed to Buy $300 Billion of Longer-Term Treasuries [Bloomberg] (Photo: Tjeerd)

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  1. jscott73 says:

    It seemed like the stock market has been doing fine over the past few days without this, why not get back to basics instead of depending on cheap money, isn’t that one of the causes behind our recent troubles.

  2. Silversmok3 says:

    Hello , hyperinflation.

    On the bright side, maybe I can pay off all my debt with one (devalued) paycheck soon…..

    :-(

    • Ben Popken says:

      @Silversmok3: With prices decreasing and demand dropping, deflation has been more the problem, I don’t see hyperinflation coming out of this.

      • warf0x0r says:

        @Ben Popken: But inflation could be a by product in the long run if things got much better if the Fed does not shore up the money supply.

        @ Silversmok3: Its an appropriate response in the short term, probably one that is necessary.

      • chuckv says:

        @Ben Popken: Inflation has nothing to do with price, inflation occurs when more money is created. Prices typically go up afterward.

        • Super Moose says:

          @chuckv: Inflation is a rise in prices, and an increase in the money supply cause. Call it a decline in a value of sum of money if you will be it is still all about prices.

    • johnva says:

      @Silversmok3: Do you know what “hyperinflation” means? This ain’t it. High inflation is not hyperinflation (and $300 billion isn’t even “high” when you compare it to the total size of the money supply). I don’t mean to be pedantic, but I’ve been seeing that term get thrown around way too casually lately. Zimbabwe, Germany 1923, or Argentina in past decades are real examples of hyperinflation.

  3. Roy Hobbs says:

    The CNBC types were very excited earlier today, saying it was a good thing, and Cramer was ecstatic, so I’m thinking that this is a very, very bad thing.

    Seriously, though, in the short run this probably helps, as anyone who can qualify for a conforming mortgage will be rushing to their loan officers to get 4-4.5% APR, which they will likely turn around and start pending, giving a kick-start to the economy from the housing/remodeling end.

    In the long run, unwinding these positions smoothly is going to be a bear and likely will lead to insanely high (>10%) levels of inflation unless they hold the securities until maturity, at which time the Fed will own the government.

  4. tobedetermined says:

    I thought we could take the oil from the Iraqis. Wasn’t that the plan? How do we even get here?

  5. Roy Hobbs says:

    Demand has two components – money supply and the psychological will to spend it. Right now they are blowing one of those through the roof, and as soon as people have a chance to catch their breath and realize that the world is not ending, the pen-up psychological desire to buy stuff will send demand skyrocketing.

    If not hyperinflation, then at least a sustained 10%+, which will, of course, lead to the same kind of double-bottom recession that occurred from 1979-1982.

  6. Sure I could agree with you, but then we'd BOTH be wrong. says:

    While we’re at it, why don’t we print off a couple of trillion dollars, and pay all our national debt. That would solve everything, right?

    Right?

    Hello, is this thing on? (tap tap)

  7. Shawn Handyside says:

    “The CNBC types were very excited earlier today, saying it was a good thing, and Cramer was ecstatic, so I’m thinking that this is a very, very bad thing.”

    Best comment of the day!

    • KyleOrton says:

      @Shawn Handyside: Agreed. Reply worked at just the right time to chime in.

      By the way, anyone still planning on fixing it? Could you update us please? Threads have been unmanageable lately.

      • mac-phisto says:

        @KyleOrton: if you’re using FF, i downloaded the “adblock plus” add-on (looks like a stop sign) & subscribed to all the suggested lists when it installed.

        problem is gone for me – you might want to give it a shot.

  8. kwsventures says:

    Gold, Silver, Commodities .. hyperinflation plays.

  9. kingmanic says:

    Damn. They went with “Fuck the people” (buying up bad mortgages) instead with “Fuck the banks” (asserting partial ownership in exchange for capital) strategy to get out of this. ohh well. I’m not American so I would have benefited indirectly either way.

  10. krispykrink says:

    At this point, there’s no difference between Monopoly Money and the Federal Reserve Note.

    • mac-phisto says:

      @krispykrink: actually there is. everyone knows the $50 bill should be blue instead of pink & the $5 bill should be pink. plus, hundreds aren’t gold yet & we don’t have any $500 bills in production.

      but yeah, other than that…

  11. deejaypopnfresh says:

    there hasn’t been a difference in monopoly money and the reserve note in a long time!
    I don’t think there will be a point that people realize the world is not ending, because the world as we knew it is long gone. Its all down hill from here. I bet nobody ever realized how good they had it.

  12. Plates says:

    Isn’t printing more money called inflation?

  13. Baccus83 says:

    Take a look at Zimbabwe and THEN say this is hyperinflation.

  14. sirellyn says:

    The only reason there hasn’t been crazy inflation thus far is that the US enjoys world reserve currency status. So if any one has to repay debts, liquidate assets, or deal with any sort of large money they have to convert they assets into US dollars. Thus for now, while the liquidating is going on, there is a crazy demand for US dollars. Not because they are worth a lot, simply because it’s the reserve currency.

    There is no way this will not end in a form of hyperinflation. (Double digit inflation or more each year.) This year alone the entire US money supply will be doubled, possibly tripled. Eventually everything follows the laws of supply and demand, and your money will be worth 30-50% of what it is now in a year or two at the most.

    Will it continue to Zimbabwe like standards? I think we’ll be forced to choose a new type of currency before that happens. But it will still be very bad.

    • Trai_Dep says:

      @sirellyn: Overall, I agree.
      Although, dude, you’ve GOT to avoid terms like “hyperinflation”, since it has a specific meaning that’s way outside the topic at hand. And it’s far, far more than simply double-digit (especially low double-digit) rates. :)
      The thing is, we’re very aware of the risk. And there are a wealth of tools available to ratchet down inflationary trends that work incredibly quickly (for an economy our size).

      But yeah, to your larger point, I agree. It’s a concern that we’d be foolish to not monitor.

  15. hypnotik_jello says:

    I love the armchair economists on this site. It boggles the mind, it really does boggle.

  16. hypnotik_jello says:

    And I meant the commenters.

  17. Kevin Davis says:

    I welcome this. I locked in a home mortgage rate today at almost a whole point lower than yesterday ;)

    Go fed, go fed.

  18. humphrmi says:

    @Plates: Isn’t printing more money called inflation?

    No, printing money is called monetary policy. Inflation is an increase in wages and prices. Sometimes inflation is caused by monetary policy. Sometimes, not.

    Think of it this way. A gopher has dug a big hole in your yard. Do you fill the hole? How? Pour dirt in it? But doesn’t pouring dirt in your yard cause hills to form? Wait, you shouldn’t pour dirt in the hole, because it will cause your yard to become one big hill, right?

    In theory, a well thought out, balanced monetary policy can help pull the economy out of a deflationary stage (I.e. what we’re in now), and then can be adjusted later to prevent inflation. Just like you might do with your gopher hole – fill it with dirt until it’s level, then stop pouring in dirt.

    • KyleOrton says:

      @humphrmi: Oooh, wage inflation.

      Let’s see if that happens. Seriously. I’m going to wait here and see.

    • The_Gas_Man says:

      @humphrmi:
      When a government’s reserve prints cash that isn’t backed by any real wealth, it is indeed called “monetary inflation”. There’s a difference between “price inflation” (a rise in the price of goods and services) and “monetary inflation” (a decrease in the value or “buying power” of the units of currency). And “monetary policy” does not necessitate “monetary inflation”, (although when using a fiat currency, they do tend to go together).

  19. Silversmok3 says:

    Well, not hyperinflation in the classical sense. We wont see Zimbabwe-scale inflation,but I submit that the working man’s pay is already devalued as it is.

    Monetizing our debt can get outta hand in a hurry-once you start inflating to make the bills,its damn hard to turn the switch off. And while theres lots of cases of inflation turning extreme, there arent to many cases of inflation being used ‘responsibly’.

    We shall see, but history is against the optimists on this one.

    -Silversmok3

    • Jaime says:

      @Silversmok3: They’re not printing more money – they’re buying bonds. This increases the reserves available to make loans. It will also free up the credit and mortgage markets. There may be a slight amount of inflation but as Ben says, I’d worry more about deflation, or stagflation at this point. It’s a smart move on the part of the Fed.

  20. Blueskylaw says:

    Here is an example of hyperinflation.

    Crushed by World War One’s debt, the Weimar republic kept printing money and giving it directly to consumers and businesses to buy votes and help them cope with ever increasing prices.

    Within a few years the Mark had devaluated so much that a postage stamp cost fifty billion Mark and everyone’s life savings had been wiped out. Mark bills were worth less than the paper they were printed on. As the famous picture above illustrates, in the face of galloping energy prices, it had become cheaper to heat one’s house by burning money than coal.

  21. ChuckECheese says:

    I can’t wait until the day I get to carry a wheelbarrow full of cash to the 7-11 to buy a Pepsi.

  22. FoxCMK says:

    But remember…it’s our fault we’re in a recession because we’re saving money.

  23. piratebull says:

    Yay Inflation!!! Printing money is now the smart thing to so.. Guess Obama has joined the Green Back Party.. These guys are clueless.. Let the market fix it self!

  24. Anonymous says:

    I think people have some concepts confused. Hyperinflation can in fact be caused by the very scenario we are seeing today. The difference between inflation and hyperinflation isn’t some vague picture of Germany in the 30s, it’s when the rate of inflation goes up past the actual rate of monetary expansion. The Fed doesn’t set prices, people do… and if people think that their money is becoming more and more worthless (because there’s more of it with no corresponding value created), they will value it less, no matter what the actual amount of money in the system is. When they anticipate that their money is being worth less and less each day, the speculation for inflation can exceed what is actually happening with the monetary supply, and that’s when you see wheelbarrows of bills for a loaf of bread.

    So yes, situations like this really can lead to hyperinflation. And no, printing money is NOT a good solution for the situation we’re in, no matter what the Keynesians say.

  25. hi says:

    1. They don’t print money.

    2. The money is created out of thin air.

    3. America is 11 TRILLION dollars in debt.

    4. This adds to America’s debt above (which means you the taxpayer and your unborn children owe this money they are creating.

    5. Creating new money out of thin air will not help. They will keep driving the value of the dollar down until it is completely worthless.

    6. When they say they are ‘injecting money’ it means they are creating new money out of thin air.

    7. The Fed is destroying our economy on purpose (by ‘injecting money into the system’ see #6 above’) and then they will ‘bail us out’ by creating a new one world bank with a new currency.

    Abolish the fed before they destroy our country anymore than they already have.

  26. hi says:

    Above where I said they don’t print money I’m talking about most the money isn’t printed it’s just numbers on a computer that is transferred to another bank. I know they do print some money. But if all the printed money was gathered up they would be missing trillions because it’s all just digits on a computer.

  27. bmorg003 says:

    I’m putting all of my money in waffles! Tasty waffles, and guns and ammo to protect my waffles from the masses once the world economies collapse… (ref. family guy)

  28. JGKojak says:

    Some inflation is a good thing. We have had low inflation for a long time because productivity has risen while wages have remained stagnant. Had wages risen with productivity, there should have been a corresponding slight inflationary side effect- again, a good thing because wages go up.

    This is why we need to evaluate the National Debt and deficit in inflationary terms- 1 Trillion becomes 500 Billion in 10 years with 10% inflation (its not that simple, but you get the picture).

  29. Project Thanatos says:

    Yay! Let’s print money that has no true backing so that all of our printed currency devalues even more than it has! Isn’t inflation great? :)

  30. bishophicks says:

    What the Fed is doing won’t be inflationary until the banks start making loans again and the banks won’t start making loans unless they think they’re going to be paid back.

    The Fed is injecting huge amounts of cash into the system, but the banks are sitting on it. This has the same effect on inflation as printing 1 trillion in perfect counterfeit bills but instead of spending it, you bury it.

    If the banks suddenly decide they can make loans again the hundreds of billions of dollars on their balance sheets can be turned into trillions in loans – THAT is where inflation would kick in. If the Fed sees lending start to increase, they can start applying the brakes – they can do the opposite of what they did yesterday, they can raise reserve requirements, raise rates, etc. But they would have to take care that the steps they take don’t jeopardize the recovery, only keep things from overheating.

    I think we’re in a deflationary environment for a while. At least a year. There are cars and other stuff stacked up at entry ports as far as the eye can see. Even if credit started flowing again (and I don’t think it will until housing and employment stabilize) there is a huge amount of excess inventory that needs to be worked through (cars, houses, etc.) before we start getting into a “too much money chasing too few goods” scenario.

  31. RockLobsterNet says:

    I’m not sure you have an entirely accurate view of what the idea is. In my understanding, this is a move to lower the interest rate on the bonds being sold to finance the government deficit. I believe the Fed is trying to lower these rates in order to make other long term loans such as new mortgages and long term business loans more appealing to banks so that credit markets will flow more freely.
    Obviously, this carries a large risk of high inflation, but that inflation is likely a ways off. For such inflation to occur, money would have to actually be moving in the first place. The Fed could dump as much money in as they want right now and if it’s not moving, you won’t see inflation. The challenge then to the Fed is to find a way to contract the money supply once everything starts moving again without causing too much of a shock to the system.

  32. ahow628 says:

    Call the fire department! My savings is on fire!

    Let the incineration begin…