The Fed conjures up another $1 trillion

The econ geeks call it "quantitative easing." The rest of just say: "printing money."

Published March 18, 2009 8:20PM (EDT)

At about 2 p.m. EDT, the Federal Reserve announced that in order "to provide greater support to mortgage lending and housing markets," it would buy $300 billion worth of U.S. Treasuries and up to $750 billion more agency mortgage-backed securities over the next six months. Investors were instantly ecstatic -- the Dow immediately jumped 100 points, and it closed up 92.

The Fed described what it was doing as increasing "the size of the Federal Reserve's balance sheet." William Poole, former president of the St. Louis Fed, called it an example of "massive quantitative easing."

Wikipedia defines "quantitative easing" as "the creation of a pre-determined quantity of new money 'out of thin air.'"

The Wall Street Journal concurs:

"The Fed is now essentially printing money to increase the supply of credit in the economy."

Helicopter Ben rides again. Higher inflation would therefore appear inevitable in the not-too-distant future. But ranked against the rest of the economy's ills, fear of inflation currently doesn't rank very high. Then again, it's never too soon to start asking, with the Fed boldly pushing the expansion of credit as vigorously as it can, where the next bubble is going to emerge.

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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