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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: Les H who wrote (246509)5/3/2010 2:23:57 PM
From: TommasoRead Replies (3) of 306849
 
>>>Banks are increasing purchases of U.S. government securities to pump up profits while lending to businesses languishes near the lowest levels since credit markets started to freeze almost three years ago.
<<<

I was trying to understand the implications of this for the future of the economy.

Surely at some point interest rates will start to rise. That will mean that banks will take a gradual but huge hit on the value of their capital holdings. That in turn would mean a severe restriction on the money supply. That would mean a much more severe downturn in economic activity than seen so far.

At the same time, especially given the huge increases in government debt, the interest rate payments alone will be enormous. There will be no way to cover these payments other than creating money.

The inflationary depression looks more and more likely.
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