patrick.net

http://ochousingnews.com/blog/federal-reserves-taper-slow-housing-cause-new-recession/

The federal reserve began tapering bond purchases in December 2013, and the US economy shrank at a 2.9% annual rate in the first quarter of 2014. Coincidence?

The federal reserve works to minimize the damage caused by economic downturns by stimulating the economy during recessions to prevent widespread price deflation and prevent widespread unemployment. People debate the efficacy and desirability of the federal reserves policies of central planning and interventionism, but the policy is supported by politicians and bankers while the public is largely oblivious to what goes on.

When the Great Recession began in 2008, the federal reserve lowered the federal funds rate to zero; since it couldn’t lower interest rates any further, the federal reserve began buying longer term Treasury Bonds and took the unprecedented move of buying mortgage-backed securities to stimulate housing. Many people don’t understand that when the federal reserve buys bonds, it doesn’t have the money stored in a vault somewhere to complete the purchase: the federal reserve prints money when it buys bonds.

There are limits to how much money the federal reserve can print. Ultimately, the total amount of money in circulation represents the total value of goods and services in the economy. If the federal reserve prints too much — and there is always pressure to print free money — the excess causes price inflation. Fear of price inflation and a loss of confidence in the US dollar are two of the reasons the federal reserve decided to taper its bond purchases in December of 2013.

Source: http://ochousingnews.com/blog/federal-reserves-taper-slow-housing-cause-new-recession/#ixzz35ksmXk2U

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