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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: stomper who wrote (205450)	5/31/2009 7:22:23 PM
From: Perspective	Respond to of 306849

Pretty sure it's B, <Or does the steepening yield curve mean investors are worried about the deterioration in the U.S. fiscal outlook, or the potential for a collapse in the U.S. dollar as the Fed floods the world with newly minted currency as part of its quantitative easing program.> But their conclusion is ridiculous: <This might be an argument to augment to step up asset purchases.> They don't get it - but I'm pretty sure the Fed understands - that they can't possibly win by monetizing the debt. Sure the government can issue a bunch more debt and spend like crazy to "stimulate", but the Fed can't improve the situation by monetizing that debt. If they try to buy back $500B in newly printed treasurys, they jam rates lower on that little sliver. But what the economist crackpots advocating this approach don't get is that for every slight improvement in rates they get for that $500B in debt, the market is going to penalize all $50T or whatever of existing long-term debt. They can't possibly improve things because the effect of increasing rates for everything they don't buy overwhelms the positive impact of lower rates on the sliver of outstanding debt they do buy by orders of magnitude. They simply can't improve the situation by monetizing the debt, no matter how much Krugman and the ivory tower crowd want it to be so. The Fed could try, and if so the impact will be fast and furious; hard assets break out like crazy. But my guess is that the Fed is forced to back down in order to prevent making things even worse. The only hope for the economy is lower rates, and that isn't going to happen if the Fed tanks the dollar and the bond market. `BC