Weapons of monetary mass destruction

Radical Difference Between Monetization 1 and QE2
Submitted by Daniel R Amerman CFA on Fri, 5 Nov 2010
It's official: the Federal Reserve announced on November 3rd that it will create approximately $600 billion of new money to fund US Treasury bond purchases, and will also utilize another $250-$300 billion of money that had been previously created (also out of the nothingness). The usual term in the media for these planned purchases is "QE2", as in the second round of quantitative easing.
The "2" in "QE2" implies that this is something that has been done before. This implication is dead wrong.
"QE2" is radically different – and radically more dangerous – than the risky games that were played with earlier "quantitative easings". The Fed's current actions are all too likely to go down into financial infamy, and this brief article is intended to warn readers about some of the key differences this time around. --
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Comment: We are beyond the point of no return. Don't lament - seek cover. The situation is much more dramatic than most people think.



The most significant difference is that this time there appears to be no references to "sterilization" of the newly created money. It's likely good old-fashioned monetization in other words, with potentially quick and dire results.



It is also essential to note that the Fed won't be directly buying Treasury bonds from the US Treasury, but will instead be intervening in the Treasury bond markets. In other words, the Fed will be creating an artificial Treasury bond market, where it uses an unlimited amount of newly created public money to buy from private investment banks.