KABOOM!!!!!

Today the fed dropped a bomb on the markets. They announced basically that they are going to be purchasing $1.1 trillion dollars of agency debt and treasuries. This is called monetizing the debt, and essentially is creating money out of thin air. Upon announcing this interest rates plummeted (refinance if you can BTW), the dollar plummeted (get rid of your dollars), and gold skyrocketed (getcha some). Short-term this will likely provide a boost to the economy because of the liquidity it will provide, but long-term this is very bad for the US unless the government/fed is extremely careful. Historically the government has never been good at pulling out of the market effectively. When they do try to withdraw the liquidity, our economy will likely freeze up again, and if they don't withdraw it, inflation will likely spike much higher. In the meantime, we continue to go more and more into debt.

Ironically, the people on CNBC pretty much called Bernanke a genius, and seemed to think this was the best thing since sliced bread (or at least the best thing since the last time the fed did something similar). They are so short-sighted it is unbelievable. If the potential effects of any action are further than a few months out, they ignore it. Did anyone talk about what this may do 3 years from now? Give me a break! Kramer about blew his wad talking about how everyone can refinance their mortgages now at even better rates (which they can and I would advise), but as before this is what led us into the current problem - EASY MONEY! Throw money at it! What did Greenspan do everytime there was a problem? Throw money at it! What has Bernanke done every time? Throw money at it! Give the drunk his drink - that'll solve the problem.

The only (I repeat only) way to grow an economy is to actually produce something or provide some useful service. You can't create money out of thin air to grow an economy. Sure everyone will have more of it, but each additional dollar purchases less goods due to inflation. So you aren't any better off. In fact, the economy is actually worse off because the government (or better put - the taxpayer, you and I) has a larger interest payment each year.

Here is my advice:

1) Refinance if you can.
2) Instead of spending the money you save each month from refinancing (which is what the government hopes everyone will do, but will just make you worse off), put it in precious metals or pay off any debt (if you have some). Essentially make your self wealthier. Another idea is to buy nonperishable goods. I expect food prices may rise substantially in the next couple years. Stockpiling some food that doesn't go bad can't hurt you, but may help.
3) Do not keep alot of US Dollars. This can be done by buying ETFs that invest in foreign currencies (such as the Canadian Dollar - symbol FXC, or Austrailian Dollar - symbol FXA). Gold/silver purchases serve this purpose also.
4) Pray that the mess our government is getting us deeper and deeper into doesn't explode.

I could go on and on about this, but if you want to talk about it more, just give me a call.