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To: LindyBill who wrote (391535)	11/6/2010 9:17:54 AM
From: skinowski	Respond to of 794357

Your explanation is lucid and helpful... and thanks to others who participated in the discussion. Indeed, for as long as the banks do not lend out their newly acquired liquidity and the money remains dead, the impact on inflation will remain mostly "psychological". However, psychology is a crucial precondition for inflation. If inflationary expectations go up sufficiently - along with rates - this new liquidity just may turn around and bite us. Probably, what is more dangerous is the actual "borrowing" by the Treasury -- which has problems selling it's bonds on the open market, and sells more and more "simply" to the Fed. The Fed, of course, "creates" the funds that it pays to the Treasury for those bonds. Since the Treasury uses those funds for ongoing expenses, the money actually gets into the hands of individuals and other recipients. And it's a lot of money - a huge proportion of the Federal budget. Why is the money supply not exploding? Probably, because some of the money is used to pay off debt, for saving - and much of it must be traveling abroad, in return for the goods we buy. Maybe that's why foreigners seem to be more concerned about Fed's printing than Americans are. That last item also has the potential to turn around and bite us, even explosively, if foreigners begin to panic out of their dollar holdings. Overall, I'd have to say that all those machinations DO have the potential for triggering huge problems. It's merely a question if the instabilities (read - printing) will be allowed to reach a breaking point - wherever it happens to be.