Fed to buy up to $300B long-term Treasury bonds

[miketheidiot]

Originally posted by: Fern

Originally posted by: Dari
So long as inflation isn't an issue, I see nothing wrong with this. It's better than selling it to the Chinese.

Depending on who the holders of those LT bonds are - they just might be paying China back for previous loans.

The only way I can see this pumping moneyt into our economy is if they can be assured that those they purchase bonds or mortgage-backed securities from are US persons.

To my knowlege, they have no d@mn way of doing so.

But I can feel reasonably sure that they just increased the global supply of US doillars by a whopping amount. Inflation to follow?

Fern

irc the amount of actual currency in circulation has roughly tripled in the last year or so. ofc m1 and m2 have been stable, making me wonder what would have happened to money supply had the fed and treasury not been pumping insane amount of currency into markets.

 

[miketheidiot]

Originally posted by: Skoorb
Government is floundering. Having spent its last bullet with lowering interest rates and selling bonds now it's just like oh fvck it, send off a print job I don't give a sh*t anymore, let's just screw it.

It's unsettling, to say the least, knowing that the monetary wealth of the entire country is at the behest of a very small group of people who can torpedo it on a whim. And easily, too. It's not like the king would have to send his troops door to door to steal people's gold, he can just do it by pressing some buttons. In theory we trust that it won't happen because a) they have everybody's best interests at heart and b) they are extremely competent and know what they're doing.

My great consolation comes from the fact that I have a nice big mortgage, so if inflation gets fully out of hand I'll be in a physical asset while its debt evaporates before my eyes.

at this point, i think they are trying to stem deflation more than cause inflation.

 

[Special K]

Originally posted by: alchemize
I saw an in interview on PBS the other night, wish I had noted who they were talking to. Some ivy league economist, basically he said that the printing presses were the next stop. And that the politically expedient way to resolve Obama's debt would be 70's like inflation.

Was the 70's inflation caused exclusively (or even primarily) by the Fed printing money?

 

[StageLeft]

Originally posted by: rchiu

Originally posted by: Skoorb

Hmmm, who should I believe? Bernanke or Brencat? Decision decisions...

FWIW I bet Brencat wasn't still a year ago saying the US could avoid a recession. He probably wasn't also at the helm while the ship charged head on into the iceberg and didn't realize that it had sunk until he was almost dead from exposure, bobbing around the ocean.

Vanguard's long term treasury index went up almost 5% today. Has that ever happened? It's hard for investors to know wtf to do with the government constantly changing sh*t.

Yeah go on and point finger at Fed and Bernanke while keep loading up your credit card and borrow what you cannot afford. (maybe not you specifically but American in general). The mess is brought upon by Banks ran by American and loans taken out by American. I don't see how Fed, who have no oversight authority nor capcity have much to do with anything.

Funny how people love to blame everyone except themselves.

A strange response. Earlier you at least tacitly approve of the printing press and here condemn the spend & borrow approach that has sunk the world into this financial hole.

How you can say the Fed have little to do with anything, are you shooting up? I don't think the world hangs on every word by Bernanke because he has no influence in the matter. I'd say this thread is evidence of a $300B influence, wouldn't you agree? yahoo finance headline story now is Fed launches bold $1.2T effort to revive economy. Do they still not have much to do with anything?

at this point, i think they are trying to stem deflation more than cause inflation.

They are trying. I don't know how good their contemporary track record is, though. This all looks a bit too much like a video game character on a plank that is suspended over a pivot point and as the character runs to one end it starts to go down, so it runs back but the natural tendency is always an overcorrection, so then it runs back and ends up falling off. Like as a kid going down a hill on a skateboard and it starts to wobble and you overcorrect and before you know it you're on your ass and the skateboard is going down the street without you.

 

[bamacre]

Originally posted by: Special K

Originally posted by: alchemize
I saw an in interview on PBS the other night, wish I had noted who they were talking to. Some ivy league economist, basically he said that the printing presses were the next stop. And that the politically expedient way to resolve Obama's debt would be 70's like inflation.

Was the 70's inflation caused exclusively (or even primarily) by the Fed printing money?

1960's interest rates

 

[StageLeft]

I am a headline whore, but from skimming them for a while now it appears that the common expectation is that inflation will become "spirited". Deflation is the immediate concern, but there is a lot of talk about inflation during a rebound, and of course if it gets substantial, so wil interest rates. May be time to lock in a low mortgage. I don't know how low they'll get, though!

 

[First]

Originally posted by: Special K

Originally posted by: alchemize
I saw an in interview on PBS the other night, wish I had noted who they were talking to. Some ivy league economist, basically he said that the printing presses were the next stop. And that the politically expedient way to resolve Obama's debt would be 70's like inflation.

Was the 70's inflation caused exclusively (or even primarily) by the Fed printing money?

Almost entirely OPEC export restrictions causing a massive supply shock. U.S. gov't had little to nothing to do with it.

Of course, there's nothing wrong with responsibly inflating the U.S. currency, even if it significantly weakens the dollar, because the benefit to U.S. exporters will continue to be tremendous as it did much of last year. The balancing effect of a weakened dollar as a result of outcry from foreign exporters helps to keep the dollar from run-away inflation. And with the way foreigners have been buying T-bills over the last 6 months, virtually no one in the world can afford the dollar to go the way of the dinosaur. That's why I always chuckle at hyper-inflation alarmists; exactly who in the world wants to see the dollar hyper-inflate and how is it going to happen even if we pretend foreign economies aren't affected by the dollar? Cue the crickets.

 

[First]

Originally posted by: Skoorb
I am a headline whore, but from skimming them for a while now it appears that the common expectation is that inflation will become "spirited". Deflation is the immediate concern, but there is a lot of talk about inflation during a rebound, and of course if it gets substantial, so wil interest rates. May be time to lock in a low mortgage. I don't know how low they'll get, though!

That's the beauty of good monetary policy; if you announce an inflationary policy and eventually help to stimulate wages and job growth as a result of that stance, you can always mitigate the inevitable uptick in inflation (if it ever gets out of control) by upwardly adjusting interest rates. You'll never stop booms or busts but you can always put yourself in a position to minimize them. That's why tying your currency to commodities is insanely stupid, you tie your exchange rate to something that inherently limits your monetary policy options, and you stagnate growth.

 

[cubeless]

cue the old snl skit about everybody being a millionaire!!!

and all the houses will be 'worth what they used to be worth' and we'll screw the chinese for buying all those treasuries!!! inflation is a winner all around!!!

if only all those cash economy people would quit complaining about not being able to buy food it would be perfect!!!

 

[miketheidiot]

Originally posted by: Special K

Originally posted by: alchemize
I saw an in interview on PBS the other night, wish I had noted who they were talking to. Some ivy league economist, basically he said that the printing presses were the next stop. And that the politically expedient way to resolve Obama's debt would be 70's like inflation.

Was the 70's inflation caused exclusively (or even primarily) by the Fed printing money?

imo, it was the result of the gold standard messing with exchange rates for so long (the dollars was way overvalued), combined with price shocks after the oil embargo.

 

[GTaudiophile]

The Euro just creamed the Dollar in 24 hours.

Or I should say the Dollar just slumped big time.

 

[First]

Originally posted by: cubeless
cue the old snl skit about everybody being a millionaire!!!

and all the houses will be 'worth what they used to be worth' and we'll screw the chinese for buying all those treasuries!!! inflation is a winner all around!!!

if only all those cash economy people would quit complaining about not being able to buy food it would be perfect!!!

This doesn't even make sense.

 

[miketheidiot]

your sig is the best

 

[Eug]

Originally posted by: Skoorb
I am a headline whore, but from skimming them for a while now it appears that the common expectation is that inflation will become "spirited". Deflation is the immediate concern, but there is a lot of talk about inflation during a rebound, and of course if it gets substantial, so wil interest rates. May be time to lock in a low mortgage. I don't know how low they'll get, though!

So are you getting a mortgage in USA or Canada?

In the US analysts are expecting a 30-year fixed to hit well below 5% (if you have excellent credit). Expect a rate cut in the next while of about a quarter in the coming weeks, although a few of very optimistic ones are suggesting even up to a half percentage point in the next several months.

In Canada, the current best big mainstream bank rate is 4.25% for a 5-year fixed from Scotia. I would guess the other banks will at least match that for a posted "special" rate, considering that rate appeared last week. Banks like ING are already at 4.15% so I wouldn't be surprised that after the announcement some of the big banks get around there. Or perhaps even lower?

 

[Special K]

Originally posted by: Evan

Originally posted by: Special K

Originally posted by: alchemize
I saw an in interview on PBS the other night, wish I had noted who they were talking to. Some ivy league economist, basically he said that the printing presses were the next stop. And that the politically expedient way to resolve Obama's debt would be 70's like inflation.

Was the 70's inflation caused exclusively (or even primarily) by the Fed printing money?

Almost entirely OPEC export restrictions causing a massive supply shock. U.S. gov't had little to nothing to do with it.

Of course, there's nothing wrong with responsibly inflating the U.S. currency, even if it significantly weakens the dollar, because the benefit to U.S. exporters will continue to be tremendous as it did much of last year. The balancing effect of a weakened dollar as a result of outcry from foreign exporters helps to keep the dollar from run-away inflation. And with the way foreigners have been buying T-bills over the last 6 months, virtually no one in the world can afford the dollar to go the way of the dinosaur. That's why I always chuckle at hyper-inflation alarmists; exactly who in the world wants to see the dollar hyper-inflate and how is it going to happen even if we pretend foreign economies aren't affected by the dollar? Cue the crickets.

If the 70's inflation was caused by the Arab oil embargos, then why did raising the prime rate to such insane levels solve the problem? What good is raising the prime rate when the problem is caused by OPEC's embargo?

 

[miketheidiot]

Originally posted by: Special K

Originally posted by: Evan

Originally posted by: Special K

Originally posted by: alchemize
I saw an in interview on PBS the other night, wish I had noted who they were talking to. Some ivy league economist, basically he said that the printing presses were the next stop. And that the politically expedient way to resolve Obama's debt would be 70's like inflation.

Was the 70's inflation caused exclusively (or even primarily) by the Fed printing money?

Almost entirely OPEC export restrictions causing a massive supply shock. U.S. gov't had little to nothing to do with it.

Of course, there's nothing wrong with responsibly inflating the U.S. currency, even if it significantly weakens the dollar, because the benefit to U.S. exporters will continue to be tremendous as it did much of last year. The balancing effect of a weakened dollar as a result of outcry from foreign exporters helps to keep the dollar from run-away inflation. And with the way foreigners have been buying T-bills over the last 6 months, virtually no one in the world can afford the dollar to go the way of the dinosaur. That's why I always chuckle at hyper-inflation alarmists; exactly who in the world wants to see the dollar hyper-inflate and how is it going to happen even if we pretend foreign economies aren't affected by the dollar? Cue the crickets.

If the 70's inflation was caused by the Arab oil embargos, then why did raising the prime rate to such insane levels solve the problem? What good is raising the prime rate when the problem is caused by OPEC's embargo?

i'm no expert on the 70's, that was a decade before i was born. From my understanding, the embargo caused the initial hit of inflation.

prices and wages are governed by contracts, so not all prices inflate immediately, and it can take a while for a sudden price jump in something like oil to spread throughout the economy.

after this process happens for a while, people start to expect inflation. Lenders price inflation into loans, investors expect it in their investment. Without strong government intervention to prevent continuing inflation, it takes on a life of its own.

raising the prime rate has the dual effect of cutting demand for loans and cutting monetary expansion, basically putting deflationary pressure on prices. The fact that the initial inflation was caused by an increase in oil prices is irrelevant.

now why didn't the government act sooner is my question, however i suppose at the time it was believed that there was a much stronger relationship between employment and inflation that people now believe is the case.

 

[StageLeft]

Karl Denninger's take. He hates this, and in a major way, says awful things about it. I know a lot of people don't like Karl, just as a lot do, but in any case I enjoy his flare.

 

[halik]

Originally posted by: bamacre

Originally posted by: Special K

Originally posted by: alchemize
I saw an in interview on PBS the other night, wish I had noted who they were talking to. Some ivy league economist, basically he said that the printing presses were the next stop. And that the politically expedient way to resolve Obama's debt would be 70's like inflation.

Was the 70's inflation caused exclusively (or even primarily) by the Fed printing money?

1960's interest rates

We were on the gold standard till 1972 ...
It was Nixon spending money in Vietnam like a drunk sailor that put inflationary pressure on the gold peg. It broke in 71/72 and we went to a free/managed float system. Incidentally this is also the reason why calls for the gold standard (Ron Paul, nuts et.al.) are just absurd. It doesn't prevent deficit spending, but it cannot adjust to accommodate it.

Nixon Shock

 

[gallivanter]

Originally posted by: Evan

Originally posted by: Special K

Originally posted by: alchemize
I saw an in interview on PBS the other night, wish I had noted who they were talking to. Some ivy league economist, basically he said that the printing presses were the next stop. And that the politically expedient way to resolve Obama's debt would be 70's like inflation.

Was the 70's inflation caused exclusively (or even primarily) by the Fed printing money?

Almost entirely OPEC export restrictions causing a massive supply shock. U.S. gov't had little to nothing to do with it.

Of course, there's nothing wrong with responsibly inflating the U.S. currency, even if it significantly weakens the dollar, because the benefit to U.S. exporters will continue to be tremendous as it did much of last year. The balancing effect of a weakened dollar as a result of outcry from foreign exporters helps to keep the dollar from run-away inflation. And with the way foreigners have been buying T-bills over the last 6 months, virtually no one in the world can afford the dollar to go the way of the dinosaur. That's why I always chuckle at hyper-inflation alarmists; exactly who in the world wants to see the dollar hyper-inflate and how is it going to happen even if we pretend foreign economies aren't affected by the dollar? Cue the crickets.

I am not so certain that it has been foreigners buying the past six months. It does worry me a little bit.


By the way, I agree fully with you about the risk, (or lack thereof), of hyperinflation, and with the absolute necessity for Japan and China to continue to seek safe harbor in the US.

 

[gallivanter]

Originally posted by: Evan

Originally posted by: Skoorb
I am a headline whore, but from skimming them for a while now it appears that the common expectation is that inflation will become "spirited". Deflation is the immediate concern, but there is a lot of talk about inflation during a rebound, and of course if it gets substantial, so wil interest rates. May be time to lock in a low mortgage. I don't know how low they'll get, though!

That's the beauty of good monetary policy; if you announce an inflationary policy and eventually help to stimulate wages and job growth as a result of that stance, you can always mitigate the inevitable uptick in inflation (if it ever gets out of control) by upwardly adjusting interest rates. You'll never stop booms or busts but you can always put yourself in a position to minimize them. That's why tying your currency to commodities is insanely stupid, you tie your exchange rate to something that inherently limits your monetary policy options, and you stagnate growth.

The worry about QE is that nobody really knows what or when. And will the Fed be able to reverse course when necessary. It won't be strictly a monetary decision, but also a political one.


Couple that with the seeming proclivity of the current powers that be to favor protectionist policies and over-regulation, and there could exist a toxic recipe.

 

[Special K]

Originally posted by: halik

Originally posted by: bamacre

Originally posted by: Special K

Originally posted by: alchemize
I saw an in interview on PBS the other night, wish I had noted who they were talking to. Some ivy league economist, basically he said that the printing presses were the next stop. And that the politically expedient way to resolve Obama's debt would be 70's like inflation.

Was the 70's inflation caused exclusively (or even primarily) by the Fed printing money?

1960's interest rates

We were on the gold standard till 1972 ...
It was Nixon spending money in Vietnam like a drunk sailor that put inflationary pressure on the gold peg. It broke in 71/72 and we went to a free/managed float system. Incidentally this is also the reason why calls for the gold standard (Ron Paul, nuts et.al.) are just absurd. It doesn't prevent deficit spending, but it cannot adjust to accommodate it.

Nixon Shock

When Nixon spent money in Vietnam, did he do so through the sale of TBills, similar to how the current bailout is being financed?

Also, when other countries buy our debt, what's to stop them from simply printing their own currency out of thin air, converting it to dollars, and then buying our debt? Won't that lead to inflation also?

 

[QuantumPion]

If they Fed can buy $300 billion worth of T-bills, why don't they just buy all of the government's debt?

 

[gallivanter]

Originally posted by: Special K

Originally posted by: halik

Originally posted by: bamacre

Originally posted by: Special K

Originally posted by: alchemize
I saw an in interview on PBS the other night, wish I had noted who they were talking to. Some ivy league economist, basically he said that the printing presses were the next stop. And that the politically expedient way to resolve Obama's debt would be 70's like inflation.

Was the 70's inflation caused exclusively (or even primarily) by the Fed printing money?

1960's interest rates

We were on the gold standard till 1972 ...
It was Nixon spending money in Vietnam like a drunk sailor that put inflationary pressure on the gold peg. It broke in 71/72 and we went to a free/managed float system. Incidentally this is also the reason why calls for the gold standard (Ron Paul, nuts et.al.) are just absurd. It doesn't prevent deficit spending, but it cannot adjust to accommodate it.

Nixon Shock

...

Also, when other countries buy our debt, what's to stop them from simply printing their own currency out of thin air, converting it to dollars, and then buying our debt? Won't that lead to inflation also?

No. It won't lead to inflation in the US, only potentially in the nations that are "printing" that money. The value of nearly all currencies are based on exchange rates. If a nation artificially printed an inordinate amount of money to buy our debt their currency would be worse far far less, not allowing them to simply convert it to dollars and purchase.

 

[GTaudiophile]

Wow. I don't think I've seen the Dollar tank so much against the Euro in a 24 hour period before.

 

[Eug]

The CAD$ has climbed quickly vs the US$ too in the last day. Bad for me, since that makes my US stock worth that much less now. Good for the GF though since she's changing a bunch of cash today for a trip next week.

However, I think it's a reasonable drop for the US$. IMO, the US$ was overbought in the past few months. The Euro needed to climb.