A good friend of mine is much more attuned to the financial world than I have and he has been increasingly more and more alarmist in the last couple years.

While I think some of his pessimism is extreme, he has also been right enough time that I pay attention.

So today he sent me this gem, that I present for your consideration.  With all the outrage being staged over the AIG bonuses, he thinks far more dangerous activities are happening, hidden in plain sight:

Federal Reserve Press Release

To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion.

Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months.

Here are Lance’s comments:

I don’t want to get too alarmist here…but this is a watershed event happening right before our very eyes.  It is a HUGE gamble by the Fed.  In buying long term bonds, they are potentially setting up the complete collapse of the bond market and ultimately the US currency and perhaps even the government.  This ought to royally screw China…I wonder what we’ve promised them.  Taiwan maybe?  No matter…if they really wanted, they could have the entirety of  California right now.  This is not going to end well.   People should be watching the bond market right now, not the stock market.  It’s gonna get ugly.

I am not in a position to evaluate this, but even I can see there is some sense to what my friend is concerned about.  And I have seen nothing mentoined in the news, all the news reports are focused on the stuffed shirts strutting in DC with their artificial outrage over AIG.

So is he right?  Is this a serious danger?

And I personally cannot help but wonder whether the administration is using AIG as a cover for more risky things.

Thoughts?

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