The Fed's New Effort to Calm Inflation Fears: Print Money and Borrow It
The Federal Reserve Bank has come up with yet another way to inflate the money in its effort to keep the economy moving—at least through November.
As the Wall Street Journal explains: “Under the new approach, the Fed would print new money to buy long-term mortgage or Treasury bonds but effectively tie up that money by borrowing it back for short periods at low rates. The aim of such an approach would be to relieve anxieties that money printing could fuel inflation later …”
This novel Fed proposal is being referred to as “sterilized bond buying.” Sounds more like a covert operation—and maybe it is.
The Fed’s numerous shenanigans—“Operation Twist” was the latest—are part of the Fed’s ongoing efforts to increase the U.S. money supply. But if more cash is the key to getting the economy moving, here’s a better idea: Allow companies to repatriate the estimated $1.5 trillion U.S. dollars sitting in foreign bank accounts.
U.S. multi-national companies leave profits in foreign banks because the U.S. corporate tax rate is so high—second only to Japan among industrialized countries, which will, incidentally, be lowering its rate in April.
There are legislative proposals to offer tax incentives for companies to bring the money back. But President Obama doesn’t like that idea, so the money remains offshore.
The federal government would get perhaps $50 billion to $75 billion in new revenue, and a trillion-plus dollars would re-enter the U.S. economy—the goal the Fed is trying to achieve. Maybe then the Fed could abandon its sterilized bond buying scheme, which would be the best way to relieve public “anxieties that money printing could fuel inflation later.”