Yay! It's the Money Fairy! We're Saved!

Today, the Fed announced that it would buy $300B worth of government bonds.

The Federal Reserve opened a new front in its battle to bring down borrowing costs across the economy, pledging to buy as much as $300 billion of Treasuries and stepping up purchases of mortgage bonds ...

With today’s move, the Fed has committed to buy or loan against everything from corporate debt, mortgages and consumer loans to government debt, after cutting its benchmark interest rate to zero failed to end the credit crunch.

Translation: we are now simply printing money so Barack Obama and Nancy Pelosi can hand it out. There is no limit to how much they can hand out now that the money appears out of thin air. There is no need to balance the budget, raise taxes or say, "No!" to any special interest group.

Why are we doing this? Well, Brad Setser explains.

(F)oreign demand for long-term Treasuries has disappeared over the last few months ... with global reserve growth slowing (even China doesn’t currently seem to be adding to its reserves), central banks won’t be as large a source of demand for Treasuries going forward as they have been in the past ... And if — as seems likely — foreign demand for Treasuries fades long before the US fiscal deficit, the US Treasury will need to sell an awful lot of Treasuries to American investors. For the past several years I have argued that it was almost impossible to overstate the impact of central bank demand on the Treasury market.

That may no longer be the case going forward.

The world is changing. Global reserves aren’t growing. The echo from their past peak that we observe in the current Treasury data will fade.

Gold jumped $50 today. I wonder why.