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Government: Ben Bernanke shows his independence

September 21, 2011 |  8:30 pm

Ben Bernanke

Ignoring calls from GOP leaders, presidential candidates and some conservative economists, the Federal Reserve Board of Governors announced that it would take another novel step to try to goose the economy. But Texas Gov. Rick Perry can put his gun down -- the Fed isn't printing more money.

Instead, the Fed plans to sell $400 billion worth of the shorter-term Treasury bonds -- those maturing in three years or less -- and use the proceeds to buy longer-term Treasury bonds -- those maturing in six to 30 years. The point, the Fed's board explained in a news release, is to "put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative." In English, that means it's trying to make it cheaper for consumers and businesses to invest in houses and capital goods by lowering the cost of long-term loans.

I'm not sure how much good this will do; corporations are sitting on record amounts of cash, and most consumers seem more interested in reducing their debt burdens than taking on new ones. By taking long-term federal debt off the market, it will also reduce the cushion the Treasury has against rising interest rates, as David Malpass points out in a Wall Street Journal Op-Ed article. Of course, that also means the Treasury can take more advantage of falling interest rates. And $400 billion worth of securities is a very small percentage of the total debt held by the public, which stands a little above $10 trillion.

Anyway, stocks fell sharply in response to the Fed's move, but the dollar rose. In a letter to Federal Reserve Chairman Ben Bernanke on Monday, GOP congressional leaders said they wanted the Fed to pursue a "strong dollar policy." So, everybody wins, right?

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-- Jon Healey

Photo: Federal Reserve Board Chairman Ben Bernanke delivers remarks at the Federal Reserve on Sept. 15 in Washington, DC. Credit: Chip Somodevilla/Getty Images

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