Bernanke Considers Monetizing

Bloomberg flashed it as a headline yesterday: ‘Federal Reserve Chairman Ben S. Bernanke said he has “obviously limited” room to lower interest rates further and may use less conventional policies, such as buying Treasury securities, to revive the economy’ Has monetization arrived?

“Although further reductions from the current federal funds rate target of 1 percent are certainly feasible, at this point the scope for using conventional interest-rate policies to support the economy is obviously limited,” Bernanke said in remarks to the Austin Chamber of Commerce.

One option is for the Fed to buy “longer-term Treasury or agency securities on the open market in substantial quantities,” Bernanke said. “This approach might influence the yields on these securities, thus helping to spur aggregate demand.”

That’s monetization ladies and gentlemen when the central banks consider buying treasuries for exchange of cash (which is printed out of thin air). This is usually very inflationary, at least in the long run.