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Politics : President Barack Obama -- Ignore unavailable to you. Want to Upgrade?

To: Road Walker who wrote (107199)	1/10/2012 5:55:55 PM
From: RetiredNow	Read Replies (2) \| Respond to of 149317

Two things: * exactly how does liquidity help businesses when banks refuse to lend? * exactly why is it wrong to call the Fed's balance sheet a coiled spring? That's the way money printing nowadays creates inflation. In the old days, we'd crank up the printing press and you'd have inflation overnight. Nowadays, the game works like this: 1) Fed lends money at 0% interest to Reserve Banks and the cash is credited to their accounts on deposit with the Fed 2a) Reserve Banks buy up Treasuries to finance the US deficit, in the face of lack of foreign demand, and this generates the false demand that keeps Treasury interest rates low, so the ponzi scheme doesn't blow up; THIS LEADS TO NO INFLATION IN THE SHORT RUN AS LONG AS THEY KEEP DOING THIS 2b) Banks lend borrowed cash to businesses, instead of buying up Treasuries 3) Treasury debt auctions suffer a failed auction due to lack of demand from non-Reserve investors and they have to raise interest rates on the debt to attract new investors...THIS LEADS DIRECTLY TO INTEREST RATE INCREASES WHICH WOULD FORCE CONGRESS TO CUT BACK ON SPENDING OR WATCH THE INTEREST ON THE DEBT EXPLODE 4) Businesses take the cash they borrowed and invest it and spend it, driving up prices with all the excess liquidity at low rates...IN THE SHORT RUN, THIS LEADS DIRECTLY TO INFLATION AS THERE WOULD BE MORE LIQUIDITY THAN THE ECONOMY NEEDS Now, if you've been paying attention to the what has been actually happening, only steps 1 & 2a have been happening. Step 2b, 3, and 4 have NOT happened. That means that as the Fed Reserve banks balance sheet explodes with Treasury debt, it is like a coiled spring. If the spring is let loose, it can result in explosive interest rate increases and inflation in the short run. It's a classic Catch-22. The Fed doesn't want to risk massive inflation and Treasury debt defaults, which would cause a sharp economic contraction, so it has chosen this current path. However, this current path is an exponential curve of debt aggregation, which is like a Ponzi scheme that will inevitably blow up. Both paths lead to massive economic disaster in the short run, but the path the Fed is on now is multiplying the size of the disaster, the longer it goes on. As to Bernanke, he is absolutely destroying the value of the dollar. His coiled spring just hasn't sprung yet, especially in light of the massive flight to safety from Europe and other trouble spots around the world. Over the long run, though, every chart showing the value of the dollar, including the Feds own data, show that the value of the dollar has been systemically destroyed over the last 30-40 years. Give the Fed an inch and they take a mile. Look RW, you are holding a rubber band in front of your face and Bernanke has taken one end of it and is walking away from you. I am shouting at the top of my lungs telling you and others that when Bernanke let's go, either forced to by the markets or of his own accord, then that rubber band is going to snap back into your face and it will hurt like hell. You are telling me that you trust Bernanke to walk back towards you and eventually let go. No harm no foul. However, that flies in the face of every central bank action in history. Every central bank in history that has been allowed to run up debt, has done so until it becomes unaffordable eventually. And every central bank in history that has been confronted with too much debt has ALWAYS devalued their currency and it always has very disastrous consequences. You are betting against the odds this time. Good luck with that.