vincecate wrote:If QE2 was not going to reduce the value of the dollar, other countries would not care about it. As it is their central bank reserves will be worth less and exchange rates will be messed up. This international fury shows they think the drop in the value of the dollar will be significant. I too think the value of the dollar will go down and prices will go up, at least for things we need like food and energy.
vincecate wrote:The Fed said they would not monetize the debt and talked lots about their "exit strategy". They even agreed that if they did not unwind their liquidity injection it would create inflation. Now not only are they not unwinding they are injecting more. Between the MBS they are reinvesting in treasuries and this new $600 billion going into treasuries, for the next 8 months they will be printing just about matching the rate of deficit spending. It means that there is no net private buying of government bonds. This is usually part of the hyperinflation story.
The next thing that happens is people realize that the government is just printing money to spend so the value of the dollar will be going down. With this realization they won't want to buy any more bonds and will redeem existing bonds as they come due. Paying off existing bonds as they come due requires a next level of printing speed. When we get to that point I think we will be very close to the end of the dollar.
Take a few seconds to watch Bernanke lie under oath saying he will not monetize the debt:
Higgenbotham wrote:I don't believe the Fed is printing the money to spend. I think they are trying to offload the MBS from their balance sheet back onto the banks and fill in the hole from deteriorating real estate prices.
vincecate wrote:They are not selling their MBS. They are just using any income from their $1.7 trillion holding of MBS to buy Treasuries. In other words, no exit strategy. Then to this they added $600 billion over the next few months.
vincecate wrote:The Fed gives cash to the Treasury for bonds. The Treasury spends. My point is that there is about $100 billion per month deficit spending and there is about $100 billion per month that the Fed is giving to the Treasury. So in effect, for the next 8 months, there will be no net bond sales to the public. All new debt is being funded by newly printed money from the central bank. This is what usually happens right before things get really bad.
Higgenbotham wrote:Bernanke discussed the plan Friday during a Q&A at Jacksonville University. The Fed is taking the treasuries from banks and exchanging them for reserves.
vincecate wrote:Higgenbotham wrote:Bernanke discussed the plan Friday during a Q&A at Jacksonville University. The Fed is taking the treasuries from banks and exchanging them for reserves.
When the Fed does this is it buying treasuries for new money.
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