Fed to buy Chevy Volts?

It has been revealed that the Fed is going to be buying mortgage backed securities in the latest version of QE, I guess this makes QE III. The point is that the Fed imagines that there is still trouble in the mortgage backed security industry. Well, there is trouble on other fronts as well. For example, GM is having trouble selling Chevy Volts, their electric car. So why in the heck doesn’t the Fed buy and park Chevy Volts?

The point is that there is a beauty to limiting the Fed open market operations to government bonds. This limits the mischief that the Fed can get into. That is, they can ratify terrible fiscal policy, but that is the extent to which they can screw up the economy. Now the Fed seems to have opened a new front. It appears that they feel free to meddle in any industry that, in their view, deserves their help.

Bernanke is presiding over the end of Fed independence, because the flood gates have been opened. Other industries will now look to the Fed to fix their problems.

If we ever get back to the days when the money multiplier meant something, I suggest that the Fed should stick to trying to achieve a single goal, price level stability. Furthermore, I suggest that the Fed should stick to a single asset class: government bonds.