Federal Reserve

Peter Schiff on the latest Fed inflation program.

"The big news is that the Fed is now doubling the amount of money it is printing. In addition to its ongoing $40 billion per month of mortgage backed securities (to stimulate housing), it will now buy $45 billion per month of Treasury debt. The latter program replaces Operation Twist, which had used proceeds from the sales of short-term treasuries to finance the purchase of longer yielding paper. The problem is the Fed has already blown through its short-term inventory, so the new buying will be pure balance sheet expansion."

Schiff points out that Bernanke's measurements of 6.5 unemployment and 2.5 percent inflation are both to be measured subjectively so the Fed is not really restricting itself.

"The Fed is committing to more than a $1 trillion annual expansion in its balance sheet, an amount greater than the total size of its balance sheet as late as 2008. Most forecasters believe that the Fed will have $4 trillion worth of assets on its books by the end of 2013, and perhaps more than $5 trillion by the end of 2014. If conditions arise that require the Fed to withdraw liquidity, the size of the sales that would be required will be massive. Who exactly does the Fed believe will have pockets deep enough to take the other side of the trade? "

In the end we're all dead anyway.

"Without the Fed's buying, it would be impossible for the Treasury to finances its debts at rates it can afford. That is precisely why the Fed has chosen to monetize the debt. Of course, officially acknowledging that fact would make the Fed's job that much harder. Without the monetization safety valve, the government would have to make massive immediate cuts in all entitlements and national defense, plus big tax increases on the middle class."

It's coming anyway.