The Federal Reserve has embarked on a controversial new program of buying $600 billion of U.S. Treasuries to keep interest rates low and spur the economy.

There is some disagreement among some members of the Fed concerning the risks of this new program. Some fear that the economy is growing too rapidly, fueling unwanted levels of inflation, as reported by CNNMoney.

Saint Louis Federal Reserve president, James Bullard, said the Fed may need to buy more treasuries to pump more money into the economy.

Here we are two years down the road and nothing much has changed. The same old tactics are used to try to boost the economy, while unemployment remains high. In fact, initial claims for unemployment jumped to 500,000 this past week.

Things are not working out as planned. Why is that?

A new fear gripped the market Friday. Originally, gross domestic product -- the broadest measure of economic activity -- was reported to have grown 2.4% in the second quarter. Now, many are expecting the Department of Commerce will revise this figure down next week. According to a Bloomberg survey, revised GDP will have lost one point to a more anemic 1.4% growth.

The expectation of the lower GDP caused an accelerated rush to buy Treasuries. On the futures market, the 30 year bond was up 15 ticks to 134-26. The Dow Jones Industrial average continued its decline, falling yet another 90 points in early morning trade.

Option volume was relatively quiet in Citigroup Inc. (C) on Tuesday, with call and put activity both falling short of the expected daily levels. However, a noteworthy volatility play crossed the tape around midday, with one long-term speculator betting on a significant price swing from the bailed-out bank.

Shortly after noon, a block of 10,000 March 2011 4-strike puts traded at the ask price, suggesting they were purchased, while a matching block of 10,000 March 2011 5-strike calls changed hands at the ask price. Open interest at both strikes swelled overnight by more than 10,000 contracts apiece, confirming these were all freshly opened positions.

They call themselves bond vigilantes. They are investors who are demanding higher yields at U.S. Treasury auctions.

Treasury auctions were going along quite smoothly until last week. Inflation is low, the housing market is in a slump and unemployment is at near record levels. All of this mixture is the stuff that low interest rates are made of.

Last week, the Greek debt crisis brought the problem of too much debt front and center. Now, investors are looking at the U.S. and see a mountain of fiscal debt that needs financing. The huge U.S. debt, $1.7 trillion, is making investors reappraise the yields on U.S. treasuries.

American International Group (AIG) has gone back to the feds. The insurer pulled another $2.2 billion from its Treasury Department facility to support the property-casualty business units that will comprise the restructured company. AIG used the cash from Treasury to redeem some securities held by its insurance subsidiaries to increase liquidity and address rating agency considerations.

According to David Havens, managing director of credit trading at Nomura Securities (NMR), "AIG still needs to be cognizant of where the rating agencies stand on their solvency." He adds, in Bloomberg News, that the funds may have been sought after the company got "feedback from the rating agencies that the regulatory capital within the operating companies doesn't muster up."

So, this sounds like a great idea, right? The people of our city are unemployed, leading to less cash and less spending -- so let's print our own money! As those gentlemen in the now-defunct Guinness ads shrieked: Brilliant! In Detroit, a group of businesses are now accepting what is called Detroit Cheer. With this local currency you can buy a pizza, receive some electrical services, and day care for your pooch. The Cheer can also be exchanged for cash at local bars. Sounds like it would be illegal, right? Well, the article notes that it isn't -- as long as the printed currency doesn't look too much like the dollar it is perfectly legal. I don't think anyone is going to confuse the Detroit Cheer with the American Dollar.

The bailouts of late 2008 and 2009 have cost the American taxpayers $61 billion, according to the Treasury Department, but the banks aren't to blame this time. The auto manufacturer bailout, which includes Chrysler and General Motors (GRM), has cost the country more than $30 billion, with American International Group (AIG) consuming another $30 billion.

Meanwhile, Bank of America (BAC) has already made good with the government, and several banks -- such as Capital One (COF), JP Morgan Chase (JPM) and TCF Financial (TCB) -- only have to clean up situations regarding the warrants they've issued. And interestingly, the losses from the bailouts on AIG and auto manufacturers are being offset by profits from the bank bailouts, which could generate additional funds of up to $19.5 billion.

Seven more banks failed late Friday, including institutions in Illinois, Minnesota, Wisconsin, Georgia, and three in Florida. The FDIC posted the liabilities it would assume and which banks would take on customers from the shutter institutions in detail on its website.

According to MarketWatch, "CreditSights, which tracks the dismal data, predicts that in the current cycle, from 2008 through 2011, as many as 1,100 banks will fail. That would wipe out 13.4% of all U.S. banks, representing 7% of U.S. banking assets."

The U.S. Treasury and Congress are putting pressure on the Fed to disclose its governance policies.

Almost three months ago, on June 17, the Obama administration proposed a regulatory overhaul including a "comprehensive review of the Fed's ability to accomplish its existing and proposed functions."

There is some confusion as to why the Treasury is undertaking this task. The Fed was created by Congress to be independent of the executive branch and Congress.