The Federal Reserve is already engaged in unorthodox “quantitative easing” and should prepare for the possibility that more extreme measures could be needed to guard against deflation, Don Kohn, its vice-chairman, said on Wednesday.

“We have already engaged in forms of quantitative easing,” Mr Kohn told the Cato Institute, a think-tank. He said the US central bank should consider “what other forms of quantitative easing might happen as a contingency plan”.

Strictly speaking, this is not outright quantitative easing because the Fed continues to mop up the excess reserves it creates to keep the target interest rate positive. But the central bank could easily stop doing this and move into full quantitative easing as interest rates approach zero.

Beyond this the Fed would likely start to purchase assets outright, starting with government securities such as the two-year Treasury note, in order to bring down benchmark interest rates for longer periods of time.

My comment: The move to full outright creation of money by the FED and purchasing of all types of securities will be the next solution they will try. The Treasury will issue debt and the FED will create money to buy the debt. Once dollars holders see this they will devalue the dollar for us.

John Polomny
The Real Deal