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Strategies & Market Trends : MDA - Market Direction Analysis
SPY 671.910.0%Nov 14 4:00 PM EST
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To: c.hinton who wrote (67930)1/30/2001 10:18:35 AM
From: stockamaniac  Read Replies (1) of 99985
 
<<Any new liquidity should go to paying off existing debt not creating new>>
lurker here who greatly enjoys this board. With regards to the 'eventual payoff of the debt' (which is over $3T when you count all the trust funds the gov't owes) I don't see this point raised much but if the gov't actually pays off the debt then at some point they start redeeming the notes the Federal Reserve owns. Since some banking act of the mid 30's, our money supply is pyramided on gov't debt. This would actually cause a contraction of the money supply which , of course, has recessionary effects. The more of the F.R. 's notes the gov't pays off the worse the money supply would get. If the gov't payed off every dollar of the debt then there would be no money (other than coins).
That banking act allows other instruments than gov't notes to be used to back the money supply, but to my knowledge they've never been significantly used, and I don't know if they could support a trillion plus M1.
There's certainly alot of room before this becomes a concern, but when politicians talk about paying off the entire debt it would be nice to see them have a plan for the consequences of doing it.
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