"The action makes the Fed a buyer of long-term government bonds rather than the short-term debt that it typically buys and sells to help control the money supply."Why do we care? There is a risk that these actions could dilute the value of the dollar (which dropped sharply upon this news) and cause inflation in the future.
This is in addition to an "unprecedented expansion of lending by the Fed."
"In effect, the central bank has been lending money to a wider and wider array of borrowers, and it has financed that lending by using its authority to create new money at will..." (emphasis added).By adding more money to the system, the Fed hopes to head off deflation, but runs the risk of setting off inflation.
"Since last September, the Fed’s lending programs have roughly doubled the size of its balance sheet, to about $1.8 trillion, from $900 billion. The actions announced on Wednesday are likely to expand that to well over $3 trillion over the next year...The Fed’s action is an expansion of its effort to bypass the private banking system and act as a lender in its own right."
This is a complicated issue that many of us don't understand fully.
To start you thinking, try this video (hat tip Anchoress):
Then, for a good basic description of a market economy and how we got to where we are, read this article: The Money Meltdown.
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