Friday, January 9, 2009

Even former Fed Governor is calling out the Fed

Former Governor of the Federal Reserve Bank of St. Louis William Poole as soon on Bloomberg TV:

"The Fed has been encouraging the bond market to think the Fed is going to be in there supporting Treasury Bond yields. That can't be because the implications of that commitment are too simply horrendous to think about."

He's basically blasting his former colleagues for lack of transparency on their unprecedented balance sheet blow out. He also criticizes them on mistakenly (or deceptively) trying to artificially suppress interest rates, thus hoodwinking bond buyers into stepping up and continuing to purchase US Treasuries. There's been a dearth of buyers since last September--no buyers equals higher interest rates to attract said buyers. Hence, bond prices will reverse and melt down, much like the mortgage-backed securities market.

The US government is now the debtor of last resort, and when investors stop drinking at the trough, there will be nobody to sell our massive trillion-dollar debt to. When interest rates spike to attract reticent demand, the interest on said debt will choke our country for decades, if not generations.

Poole's colleague in the dual interview, a former member of the (Federal Open Market Committee (FOMC), even goes so far as to say the recent actions by the Fed are unconstitutional.

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