THE FED PLUS FANNIE AND FREDDIE EQUALS FINANCIAL DISASTER
You may have been reading how the Federal Reserve has been buying huge quantities -- almost a trillion dollars' worth -- of "mortgage-backed securities" (MBS). There is a relatively high probability that this program is going to end in disaster -- and here is why.
The Fed is a government institution, fully owned by citizen taxpayers. The dollars it creates only have value to the extent people believe that the Internal Revenue Service can extract real wealth from taxpayers to equal the value of the new dollars being created.
Either Congress will have to vote for more taxes (or engage in less spending) to obtain the wealth to cover the new money, or the Fed's printing of money will cause inflation, thereby reducing the value of the money that individuals and businesses have or receive in exchange for the government bonds they have purchased.
There are many reasons why inflation could suddenly surge and the Fed would lose control.