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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: mishedlo who wrote (9339)3/4/2004 4:39:52 PM
From: Jim Willie CB  Read Replies (1) of 110194
 
the Fed has threatened to monetize in two key areas
1. the federal budget deficit
2. existing longterm trez debt already floating

your argument about needing a borrower misses the mark
the customer (borrower) can be the govt itself

I like to settle marginal arguments by taking to the extreme
what would happen if the Fed monetized suddenly $7000 in Treasury bonds ???

a little bit of price inflation, I would say

what would happen if the Fed monetized the entire 2004 budget deficit ???
a little bit of price inflation, I would say

in late 1999, all the capgain tax revenue rendered the fed budget operating deficit almost nill
we saw a stock explosion upside, then bust

if the Fed monetizes on a large scale, LOOK OUT
we will get something ugly and not foreseen
we will witness some colossal price inflation from demand coming from two sources:

1. buyers of USTBonds redirecting their money elsewhere
2. bond holders being redeemed with ready cash

HOWEVER, the location of the price inflation is most important
it will be more of the same: COMMODITIES
which will amplify the pressure on the crackup boom
and stall economic recoveries worldwide, except in China,
where they have a pegged noose around the US/Fed neck

/ jim
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