Posted on 08/17/2007 5:22:20 AM PDT by Hydroshock
Fed declares "downside risks" to economy have increased, OKs half percentage point cut in discount rate on loans to banks. (Breaking
(Excerpt) Read more at cnn.com ...
Federal deficits and trade imbalances cause inflation?
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Yes. Deficit funding creates “money” out of thin air. Wealth on paper. Then people spend the wealth. We pay the interest on the “wealth.” When it becomes unsustainable to pay the interest, and people require more interest to take the risk of buying our paper, we take a hit on our wealth, and the game is over with us as the loser.
How is it inflationary? Walk through the steps.
The Treasury sells a 6 month T-Bill. I take money out of my checking account to buy it. Where is money created out of thin air?
Wealth on paper. Then people spend the wealth.
Huh?
We pay the interest on the “wealth.”
Yes, I'd expect to be paid interest on the money I loaned to the government.
When it becomes unsustainable to pay the interest, and people require more interest to take the risk of buying our paper, we take a hit on our wealth, and the game is over with us as the loser.
The biggest losers will be people who don't understand economics (hint, hint).
There if anything is to many dollars floating around. The value of the dollar has dropped 30% in the past 4 years. THe cost of food and energy is shooting up. Price the cost of a gallon of milk now verses 2 years ago. If anything we need a rate increase.
The gov has seen this coming for a while and that's another reason for W's open border policy as to strengthen the consumer spending numbers so The Street doesn't reel backwards.
THE RECESSION is coming 4-5 years worth.
They keep fighting the recession but that only makes it worse. Nothing will stop it now.
So a 30 day loan is going to cause inflation to jump to 10%?
The value of the dollar has dropped 30% in the past 4 years.
When the Euro was created in 1996, it was worth $1.20, now it's worth $1.35. Wow, we're doomed!
All you have to do is look at the declining value of the dollar. Explain that to me. There are macro economic forces at play here, not micro economic moves by the Fed.
Our economy isn’t sustainable over the long haul as presently configured. Sure the deficits are coming down, by government statistics, but the recovery was being funded by more debt, or false speculation in the housing market, which allowed paper wealth to be transferred to spending ability. Now the bills are coming due. Dark days ahead.
When the Euro was created in 1996, it was worth $1.20, now it’s worth $1.35. Wow, we’re doomed!
And what was the lowest value of the euro during that time? I think when you compare its’ lowest rate to the current rate you will see quite a big rise in its’ value and comparing it to the decline of the dollar, it is very telling. The value of your currency is determined by the world market, not by our Fed. The world is voting and you can see the results. There is a reason the dollar has declined so much over the last few years. People are seeing the real dynamics of our economy and they are hedging their bets.
And the current rate on a 10 year Treasury bond is 4.71%. Scary!
When that happens all hell breaks loose.
What would happen?
The trade deficit speaks for itself. Money gone forever.
Except they reinvest those dollars in America. Are you ever going to explain how Federal deficits and trade imbalances cause inflation? Or have you realized your mistake?
The stupidity of it all is the gubbermint just creates money to "infuse' into the troubled sectors of the economy when in reality, the government should simply cut back and flush the waste they feed on. That would be real dollars pumped into the economy.
It all comes down to the value of the dollar. Your currency value is an x-ray of your economy. If the results of that x-ray were good, the value of the dollar would be going up, but it is going down, and with reason.
Currencies go up when investors look at an economy and see a future that presents real growth without an undo concern for either inflation or recession. Wealth in the long term migrates to sustainablity and stability, and tries to avoid risk and uncertainty.
Currencies go up, currencies go down. So what?
You tell me. Did the drop in the Euro ruin their economies?
A weak $$$ is good. It makes for lots of jobs.
Dr Walter Williams has patiently explained many times that the trade defficit has no bearing on the economic well being of the country any more than your personal trade deficit with your grocer.
You haven’t answered my question. What was the lowest value of the euro compared to the dollar during that time? That is the world financial institutions speaking. Macro economics at play. Some one sees a problem with the US economy in the long term.
I’m not arguing that a short term deficit is going to crash our economy. Its the underlying problems that are going to determine our longterm down fall.
Some other currencies have higher yields. So what?
When foreign governments or individuals invest their dollars in the US, they expect a return, either in yearly profits = money paid out in dollars leaving your country, or to sell those assets at some point at a profit= money leaving your country.
When they sell assets, they still hold dollars.
Welfare for the wealthy.... What the Fed is doing is lowering the cost for banks to offload crap. Discount window borrowings need not be treasury securities as would be repo’d via fed funds. Most significant is the second release this morning: the term on discount window borrowing is expanded to 30 days. Sheesh. Thank goodness we won’t let some hedge funds and banks that made bad loans pay the price. Oh, and stick a fork in the US Dollar: it’s done. Since we are socializing and monetizing all the crap mortgage loans, who wants dollars anymore?
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