Re: SC88

http://www.globalresearch.ca/index.php?context=va&aid=12816

US Federal Reserve announces massive increase in government debt

The US Federal Reserve Board on Wednesday announced that it will massively expand its moves to pump liquidity into near-frozen credit markets, including a highly unusual plan to purchase up to $300 billion in longer-term Treasury securities over the next six months.

The plan also includes an additional $750 billion in Fed purchases of mortgage-backed securities guaranteed by the federally owned mortgage finance companies Fannie Mae and Freddie Mac and an additional $100 billion in Fed purchases of Fannie Mae and Freddie Mac debt. These measures came as a surprise to global financial markets and triggered a simultaneous rush to buy Treasury bonds and a sharp sell-off of US dollars on world currency markets.

The announcement came in the statement issued by the Fed's policy-making Federal Open Market Committee (FOMC) following its scheduled two-day meeting. As expected, the FOMC said it would continue to keep the Fed's benchmark federal funds rate—the interest charged by banks for overnight loans to one another—in a range of 0 to 0.25 percent, and would do so for the indefinite future.

But the announcement that the Fed would inject up to $1.15 trillion in additional funds into the US financial system—essentially printing that amount of additional dollars—was widely seen as something of a desperate gamble, motivated by concern over the deepening economic crisis as well as the mounting political crisis arising from public outrage over the $165 million in bonuses awarded to executives and traders at the bailed-out insurance giant, AIG.............

...........The Fed's action had the character of a pre-emptive move aimed at averting a financial panic should the Obama administration fail to obtain Congressional approval for its bailout plan. The Fed has the legal power to take such action without recourse to Congress.

In its Wednesday statement, the FOMC painted a grim picture of the economic situation. It began: "Information received since the Federal Open Market Committee met in January indicates that the economy continues to contract." It went on to note job losses, declining equity and housing wealth, tight credit, falling consumer sentiment and spending, declining business investment and shrinking exports resulting from the global contraction. Significantly, the statement omitted any reference to the economy recovering "later this year.".............

.............The Fed is taking advantage of the privileged and unique position of the United States due to the role of the dollar as the world's reserve and trading currency. That status gives the US a degree of leeway to print money to paper over its debts far beyond that of any other nation. In taking the actions announced Wednesday, the US is, in effect, offloading the brunt of its crisis onto its international creditors.


However, there are limits to this license. Since last September, the Fed's lending programs have doubled the size of its balance sheet, to about $1.8 trillion from $900 billion. The actions announced Wednesday are likely to expand that to well over $3 trillion over the next year.

Such an immense expansion of US debt inevitably calls into question the value of the dollar and the credit-worthiness of the US government itself. Already last week the Chinese premier, Wen Jiabao, warned that China was losing confidence in the value of its more than $1 trillion in US debt holdings.

A United Nations panel of experts is looking at creating a new "accounting unit" or basket of currencies to replace the dollar as the world's central currency. Reuters reported that Russia is anxious to begin a discussion of such a move at the Group of 20 summit of leading economic nations in early April.

The Fed's extraordinary measures highlight the impossibility of resolving the economic crisis within the framework of capitalism without a massive destruction of living standards and a growth of economic nationalism and militarism. The more the failure of the profit system has become evident, the more emphatically President Barack Obama has declared his support for the capitalist market.

The essence of all of the measures taken in response to the crisis—from the bank bailouts to the stimulus program to the housing plan—is an effort to rescue the system and protect the wealth and power of the financial elite at the expense of the broad masses of the population. The ability of the American ruling class to reassure its global creditors in the face of an unprecedented expansion of US government debt increasingly hinges on its pledge to ruthlessly slash basic social programs such as Medicare and Social Security and impose poverty conditions on the working class.