Our federal government has nearly run out of economic tricks of late. The latest program, one of asset-buying, is known, charmingly, as Quantitative Easing. It has given conniptions to some conservatives and many other countries.

We simply cannot lower interest rates further. They are effectively at zero and this allows major banks who can shop at the Treasury window to back up and load up on huge trucks-full of dollars at virtually no interest charges, so they can lend them out or even buy T-Bills at some 3%. Some pour the dollars into credit card lending and turn that nearly free money into interest rates of 30%, or more; even more when you constantly change the due date or the credit limit and then slap on late or over-limit fees. But, even this is not working to give our nearly comatose economy a much-needed shot in the arm (as opposed to a shot in the head, delivered back in the Fall of 2008, from which we all continue to reel).

Quantitative Easing is what you try when all else has failed – literally buying up, on an enormously large-scale, our very own debt and Treasury paper. The day after our elections in early November, the Fed announced it was purchasing some $600 Billion in our own long-term Treasury securities. This came on the heels of the Fed deciding to re-invest proceeds coming from mortgage-related holdings – you guessed it – to buy Treasury debt, some $250 to $300 Billion worth. See how easy it is to get to a Trillion these days?!?

Considering that there was some $800 Billion in Treasury debt on the books already, this nearly doubles that amount. But, understand, this is all about printing more money. Except, who needs a printing press when you can just buy your own Treasury debt? No more ink-stained fingers, no more Brinks’ trucks and all those messy handling costs. And, cash is heavy!

Why do we do this now? That is what a number of other countries are asking, each worried about the strength of their own currency (and, lately, the cost, something north of $100 Billion, for bailing out Ireland, the first of the P-I-G-S countries to finally cave and really need this big fat cash life preserver from the EU).

Those super-low refinance rates for your home mortgage right now are courtesy of this process. Many economists believe (or, say they believe) that Quantitative Easing, plus those near-zero interest rates, (and, lest we forget, the stimulus bill and the federal bank bailout), have combined to prevent a global depression, and have kept our banks alive to fight another day since that strange September of 2008, when it all resembled the cake left out in the rain in that interminable song of our youth, “MacArthur Park” (written by Jimmy Webb).

Other economists differ about Quantitative Easing (not a name designed to become a beloved American household word). They say it may have only a limited effect because our problem is lack of demand, not lack of liquidity – in other words, nobody is spending, or will spend, because unemployment is so high. And, on that, oh so painful, theme, the Fed, in releasing Minutes of its Nov. 3 Federal Open Meeting Committee (the folks who make our monetary policy), recently announced that it likely will be 2012, or even 2013, before we can expect national unemployment rates to come back down below 8 percent.
Inflation used to be the Demon we all feared. Not long before it all collapsed in 2008, the Fed fretted about inflation rearing its ugly head, like it did back in the early 80’s when the prime left 20% behind in its dust for a while. But, the real danger now, like in Japan’s Lost Decade of the 90’s (after their own real estate boom and bust insanity of the late 80’s), is not inflation, but deflation.

If you are curious about deflation, try reading an interesting book which you can download to your Kindle or iPad before you even finish reading this – and which you can enjoy while digesting your holiday meals (you may want to reconsider that, though). “When Money Dies,” by Adam Fergusson, is all about how Germany went from being one of the world’s most prosperous economies in 1914, through WWI’s spectacular plunge, leaving Germany’s Mark valued at nearly zero by 1923 – a mere 9 years. Zero, the same as the cost to our banks for their money now at the Fed’s Treasury window.