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: Bill/WA who wrote (76992)	3/27/2008 7:05:20 PM
From: robnhood	Respond to of 116555

To: Bill/WA who wrote (76992)	3/27/2008 7:10:30 PM
From: robnhood	Respond to of 116555

I watched an Aussie business video the other day and one of the guests said that when the Fed had run out of trading their hoard of Treasuries for trash, then they would be seen to be literally printing money , and therefore cause a steep run on the dollar.

To: Bill/WA who wrote (76992)	3/27/2008 9:39:47 PM
From: mishedlo	Respond to of 116555

I am still taking pictures but not actively seeking publication. Publications still find me but prospects will be diminishing. Mish

To: Bill/WA who wrote (76992)	3/27/2008 10:22:19 PM
From: Moominoid	Read Replies (3) \| Respond to of 116555

The Fed "prints" money by buying bonds outright for cash. The cash is new. This new money is in theory a loan from the public to the central bank. The Fed's balance sheet treats it as a liability: en.wikipedia.org They did such an open market transaction in the last few days though they are not so common. Much more common is the Fed temporarily lending to the banks using bonds as collateral. These repos turn over all the time. There is no limit on how much money the Fed could "print". But this would cause inflation. In general they carry out temporary and permanent transactions to keep the Federal Funds Rate at their target rate set at the FOMC meetings. Where the Fed is limited is in their new program to lend Treasury Securities (bonds) to banks. They can only lend out as many as are on their balance sheet. Some have suggested that if they ran out the Treasury could step in and buy assets by selling new bonds for them. It's a bit like a fixed exchange rate regime. If your currency is undervalued you maintain the rate by buying foreign currency with newly printed domestic money at the fixed exchange rate. You can do this forever, but as China is seeing the result is inflation. On the other hand if your currency is overvalued you must buy it at the fixed exchange rate by selling foreign currency you own. And you can eventually run out of that.