mises
Joined: 05 Nov 2007
Location: retired
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 Posted: Sun May 10, 2009 9:04 pm Post subject: |
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| Rusty Shackleford wrote: |
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When the Chinese start selling all those Govt backed bonds they are holding. How do you think the fed has been able to print cash with impunity for nigh on a decade? That cash had to go somewhere.
http://www.financialsense.com/fsu/editorials/schiff/2009/0508.html
This article partially covers what I'm on about. |
Be careful with Schiff. He was correct (as were dozens of other prominent individuals) that a crises was coming, but he has been dead wrong about just about everything since.
http://globaleconomicanalysis.blogspot.com/2009/01/peter-schiff-was-wrong.html
To your point,
Selling them to who? And assuming the do sell them, how does that = dollars rushing back?
When they mature, the US will cover them, likely by issuing new debt. If they can't issue new debt, they may then print. But printing even at strongly elevated rates from the historical norm will not cause inflation in this situation.
http://www.debtdeflation.com/blogs/2009/01/31/therovingcavaliersofcredit/
| Quote: |
However, from the point of view of the empirical record, and the rival theory of endogenous money, this will fail on at least four fronts:
1. Banks won�t create more credit money as a result of the injections of Base Money. Instead, inactive reserves will rise;
2. Creating more credit money requires a matching increase in debt�even if the money multiplier model were correct, what would the odds be of the private sector taking on an additional US$7 trillion in debt in addition to the current US$42 trillion it already owes?;
3. Deflation will continue because the motive force behind it will still be there�distress selling by retailers and wholesalers who are desperately trying to avoid going bankrupt; and
4. The macroeconomic process of deleveraging will reduce real demand no matter what is done, as Microsoft CEO Steve Ballmer recently noted: �We�re certainly in the midst of a once-in-a-lifetime set of economic conditions. The perspective I would bring is not one of recession. Rather, the economy is resetting to lower level of business and consumer spending based largely on the reduced leverage in economy�.[9]
The only way that Bernanke�s �printing press example� would work to cause inflation in our current debt-laden would be if simply Zimbabwean levels of money were printed�so that fiat money could substantially repay outstanding debt and effectively supplant credit-based money.
Measured on this scale, Bernanke�s increase in Base Money goes from being heroic to trivial. Not only does the scale of credit-created money greatly exceed government-created money, but debt in turn greatly exceeds even the broadest measure of the money stock�the M3 series that the Fed some years ago decided to discontinue. |
Back to your original point, the Chinese are utterly screwed (as is much of the rest of the world) if the US economy doesn't recover posthaste.
Is it my computer or is dave's really buggy lately? It takes around a minute or more for threads to open and longer for me to post... Maybe a sign from allah... |
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