The point of the extrapolation in the chart is just to guess how much more money the Fed might need to create to keep the rate extremely low for another two years. By connecting a straight line from the start of the unusual policy tool expansions in late 2008 to today's number and then extending it to 2013, we can estimate that the policy might require about $1.5 trillion in order to keep the rate low.
The Fed doesn't calculate the amount of money that might be required and probably doesn't know for sure. They just keep buying on the open market until the rate comes to its target. If there were a loss of confidence in the dollar, the amount could become very largeand in the extreme, printing more money contributes to that loss of confidence, which in turn causes runaway inflation. We are not there yet. But this kind of open-ended promise is a dangerous precedent because we can't be sure of the cost of the commitment.
However, we can say that the Fed policy is to let the dollar fall and to support the bankers and politicians who want to stimulate the economy.
[Many analysts at Casey Research foresaw the problems that are playing out today with U.S. debt and the dropping value of the dollar. Join Bud, Doug Casey, other Casey Research experts and special guests including John Mauldin and Mike Maloney in a free online event focusing on the American debt crisisincluding how you can protect yourself and your wealth.]