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Monetizing the Debt

Started by pkamm, 03/18/2009 05:32PM
Posted 03/18/2009 05:32PM | Edited 03/18/2009 05:34PM Opening Post
So today the Fed announced that they would be buying some $300 billion in treasuries. This is the classic "flood the street with money" solution. The Fed takes treasury bonds off the market, exchanging them for the Fed's own promissory notes, that is, Federal reserve notes, i.e. dollar bills. About the most direct means of increasing the money supply that there is.

I gotta think there's some opinions out there about this. wink
Posted 03/19/2009 09:46AM | Edited 03/19/2009 09:49AM #1
Long ago studied a bit of economics, accounting and management, but am totally ignorant of finance or real-world procedures.

The accounting minutia surrounding 'how do you legally print money'-- Perhaps the details are important enough that a person ignorant of the details would be too ignorant to form a valid opinion? Or perhaps the details of HOW it is done, are less important than the macro-economic EFFECT of printing all that new money? Dunno.

Experience can re-shape OLD ignorance and naivete into NEW ignorance and naivete.

Never being a trusting sort, for a long time was leery of govt bonds from suspicion that the govt may not pay the money back. Naive assumption that if the govt reaches a point that it cannot collect sufficient revenue to service its debt, then the govt would default on the debt rather than brazenly flaunt dishonest accounting.

Can't recall anyone telling me this. It was just an assumption that the govt would have to follow somewhat-honest accounting procedures.

From the last few months, I no longer worry that the govt will default on my iBonds. I now worry that the govt will always pay its debt-- using print-on-demand money.

Because inflation has always been an expected and customary built-in feature of Keynsian economic policy, money has always had a use-by date like lettuce or cheese-- Spend the money quick before it loses value.

It looks like money is gonna have an increasingly short use-by date into the future. The iBonds were inflation hedge-- If an iBond will buy 100 burgers today, then perhaps good odds of buying 100 burgers in the future.

That may still be true, even with mass-produced fiat currency. Maybe when hamburgers cost $1000, that iBond will still buy 100 burgers. But it intuitively feels like monetary cheating or at least a very unwise way to run the money supply.

Have been trying to find some way to store work in a more permanent form than increasingly-ephemeral dollars (or dollar-derived instruments). Have not yet discovered such, but am increasingly leery of dollar-related work-storage devices.

As was earlier discussed, ammo, food, shoes may be better mid-term investments than stocks or bonds. The use-by date is probably no better than 5 or 10 years, but odds seem good that it will take more work to buy a bullet or a shoe (in dollars) five years hence. So the saved shoe is a better investment than the invested money?

Dunno. Am very ignorant of the situation.
Posted 03/19/2009 03:38PM #2
Isn't our currency supposed to deflate so foreigners can buy our stuff cheap and pull us out of a recession. If anyone has Indian H1B workers in nearby cubes, make sure you put up Harley and Corvette posters to instill in them a love for American products. wink

I think that Chinese efforts to peg their currency below ours in value has been a very big contributor to this economic mess. They've built a strong economy so they and their consumers should be buying more stuff.

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I have several telescopes, but none are semi-APO, APO, or in anyway valuable.
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Posted 05/28/2009 07:32AM #3
Paul Kammueller said:

So today the Fed announced that they would be buying some $300 billion in treasuries. This is the classic "flood the street with money" solution. The Fed takes treasury bonds off the market, exchanging them for the Fed's own promissory notes, that is, Federal reserve notes, i.e. dollar bills. About the most direct means of increasing the money supply that there is.

I gotta think there's some opinions out there about this. wink

BUY GOLD!!