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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: RJA_ who wrote (67877)8/10/2006 10:13:50 AM
From: mishedlo  Read Replies (4) of 110194
 
"Monetize:
Printing money to pay off some type of government debt or obligation.
When the U.S. Treasury receives money from the Federal Reserve system, this is known as "monetizing the debt". The debt referred to is the U.S. Government debt and is caused by the government having spent more than it takes in for many decades. The basic transaction of monetizing that debt is literally an accounting entry in a computer at the Fed - one side shows the purchase of U.S. Treasury paper securities (bonds and notes) and the other represents the Fed literally creating money out of nothing. The long term effect is inflation. "

Exactly.
In fact, the long and short term effect is inflation.
It does not cause inflation it is inflation.
Will it continue?
Yes, so will it be inflation?
In and of itself in isolation - yes.
The words "in isolation" are important
If credit contracts faster than government printing and velocity of money drops, the net total will be deflation, regardless of the price of oil or copper or anything else.

In such an environment asset prices (houses, land, equities) are likely to get hammered. I also believe the prices of goods and services will fall but perhaps not oil or natural gas.

I expect credit to plunge, via demand alone and also thru bankruptcies.

Mish
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