Fire Up the Helicopters!

Helicopter Ben has fired up the helicopters and the printing presses! In a shocking announcement today, the Fed will buy $300 billion in Treasuries and $750 billion in agency mortgage bonds. Not surprisingly, the 30-yr. was up 6.1%, and the 10-yr. up even more at 15.6%. Gold was up 5.5%, along with equities and oil as well. The dollar was down sharply agains the Euro. The ECB is the only major central bank that isn't (yet) monetizing. Japan and the Bank of England are already printing money.

Ben Bernanke is obviously very frightened by last month's net selling of Treasuries and other bonds by foreign holders. Well, if they need to sell, why not print up some new bills and buy it back cheap? Win-win. Or is it?

Here are some unintended consequences I'm going to look for. First, I think corporate bond yields will rise. Second, with the Fed buying Treasuries, many people looking for safety will jump into Treasuries now that they don't have to worry about a collapse in Treasury prices. Another consequence, perhaps intended, will be a weaker dollar. This will put more pressure on the major exporters of the world: Germany, China, and Japan. I will continue to think more about this, as I think this could be a fertile field.