The markets today are snapping back from yesterday’s sharp drop. However, in the bigger picture we believe that Ben Bernanke must be terrified.
The Fed and other Central banks of the world have done their darnedest to inflate away the debts of the developed world. These folks wanted more than anything to create inflation… because it meant it was easier to service their debt loads provided interest rates stayed low.
It is beginning to look like they failed. The Fed has announced QE 3 and QE 4, the Bank of Japan just announced a $1.2 trillion stimulus, the European Central Bank has promised unlimited bond buying… and yet deflation looks to be rearing its head again.
Bond-buying by the Fed is stupid, because those same bonds are liabilities of the U.S. Government, which need to be paid back. Large government liabilities tend promote politics and policies which are deflationary (taxation, austerity, etc).
If the Treasury decided to issue another $10T in 10-year notes tomorrow and sell them directly to the Fed and blow the proceeds on "stuff", there would be an additional $10T in circulation, but taxes would need to go up by $10T over 10 years to payoff the loan principal. The interest rate is irrelevant since interest payments are booked as profit by the Fed and remitted to the Treasury. So, $10T created and then destroyed. How exactly does this cause inflation?
They should buy Gold instead. Gold is nobody's liability. The economy needs to be flooded by unencumbered money that doesn't need to be paid back.
Last edited by atrchi on Tue Apr 16, 2013 8:31 pm, edited 1 time in total.
I think Helicopter Ben used his secret decoder ring for the ?? and concluded he should print 85 Billion a month.
“Let every man divide his money into three parts, and invest a third in land, a third in business and a third let him keep by him in reserve.� ~Talmud
?? = Profit!