Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (72746)	12/26/2007 7:14:54 AM
From: Mike Johnston	Read Replies (2) \| Respond to of 116555

My Comment: Schiff makes a false assumption that the Fed can replace credit out of thin air. The Fed is simply not in control of credit at all. The Fed can encourage borrowing but it cannot force it. The second failure by Schiff pertains to monetary printing. There are constraints on the Fed that he ignores. For example the Fed cannot simultaneously target both money supply and interest rates. Should the Fed pursue a massive printing campaign, interest rates will rise. This is simply not true. The Fed can monetize government debt and peg long term rates, by purchasing government debt with freshly printed money, in effect raising the money supply while simultaneously holding long term rates steady. I believe they will do that, if they are not already doing so. In fact, IMO should for example the Chinese ever want to divest its huge holdings of US government debt, they probably will not do it in the open market, as it would not be able to absorb that much paper, but the Fed will be the buyer in a transaction that will only be reported with a several day delay.