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Can anyone tell me if the recent Fed Reserve action to “monitize the debt” was the first explicit time(not other indirect methods) that they have taken such action? Is this an historical precedent?

I read that Japan and other countries were already doing that. Its one way to combat deflation, no? The danger is that its very explosive as economy can turn on a dime and go into inflation then hyper-inflation after the money supply is inflated too much or too fast, right?

I previously wrote: Don’t PANIC: Japan’s Financial collapse 2 occur 1st. US has a few months 2 prepare before US next

Obami won’t max out on his US Debt Credit Cards until at least another 10-15 trillion.

1. debt 10.9 trillion http://en.wikipedia.org/wiki/United_States_public_debt divided by 2. US GDP 14 Trillion, http://www.forecasts.org/gdp.htm = 80% Japan is in much worse shape. Its debt as percentage of annual gross domestic product is much higher at 170%. http://en.wikipedia.org/wiki/List_of_countries_by_public_debt

In conclusion, we should see some other countries go dramatically chaotic before we do. Its already happened in Iceland.

Of course the amount of money the US pays out just for interest on the debt and for mostly fixed(SS) spending will exceed the money it takes in from tax receipts around 2030. So its all good until about 2030 unless our foreign born President spends more than another 10 trillion or he drives down the nation’s gdp by significant percentages. We could grow our way out of this mess they Hayek way. But the principle of compound interest and “vote yourself some benefits” makes that less likely each day, no? We can’t financially survive as a country after 2025-2030 unless we were to get behind business and grow our way out of this, right?

>>>Can anyone tell me if the recent Fed Reserve action to “monitize the debt” was the first explicit time(not other indirect methods) that they have taken such action? Is this an historical precedent?<<<

Not historic new action... However, it is the first time they have done this since the 60’s.

This action came about because of several reasons.

a. It assures that the auction will have buyers for the treasuries.(It seems that foreign countries are either reluctant or unable to invest in them)

b. Short term rates are almost to ‘Ø’ Only way they can impact the economy is to try to keep down the longer term rates. If buyers were scarce, the long term (10 & 20 year) rates would shoot up, killing mortgages and capital improvement.

c. Japan, England and other central banks are doing the same thing.

The problems are many though.

a. Low rates keep investors out of the market as they seek better returns. Fund managers, retirement funds, insurance companies, and others have to scramble to try to find some investment which gives a better return and does not have high risk.

b. There becomes a perceived devaluation of the US Dollar. There is also an actual devaluation too. With $1.2 Trillion being invested say in 10 year bonds, the interest payment for the 10 years comes to $345.6 Billion expense at the current 2.88% This is an actual decrease in the dollar value, and a forward obligation to the taxpayers.

c. Since these investments only inject money into the economy through government agencies, the net benefit is extremely reduced. Typically the rule of thumb of 80%-20% could be applied. 20% actually getting out to real improvement and 80% being absorbed in increased governmental self investment. More regulators, more regulations, more government capital improvement, more government salaries, more enforcement, more prisons, more dependence on government, more compliance costs, more taxes.

If you have followed the hyperinflation in south african countries a few months ago - they can’t even agree on how high the rate was - some say several trillion%... Their only method to stopping it was to peg their currency to the US Dollar. This did not roll back the inflation, but restricted it to 2-3%. Now, almost all transactions take place in US Dollars - only use of their local currency is for some required governmental fees.

I worry that with the Fed pumping all this money into the pockets of the ‘elite’, as they grab for power, we will see a broader division of our society. Richer rich and poorer everyone else.

Another worry is that with a weakening dollar, the pressure is increasing to create a ‘Universal’ currency. Already we are hearing of Russia and China proposing this for the upcoming G20 meeting. Then the different currencies would all be pegged to the ‘Universal’ valuation. If this were to happen, it would be followed by immediate demands that developing countries be placed on a par with developed countries. Doing this would destroy the value of the ‘Universal’ currency and we unravel everything into chaos.

Why would people encourage such chaos? Because in chaos there are profits to be made. People like George Sorros are counting on that. Regardless of which way the economy goes, the hedge fund operators profit (unless they get too greedy).

As far as Øbamy maxing out our credit cards... With new ‘recovery’ spending calls coming from him even before the current one is approved, and each one bigger and more outlandish than the one before, it won’t take till 2020... Maybe 3 years at most... IMO

read that Japan and other countries were already doing that. Its one way to combat deflation, no? The danger is that its very explosive as economy can turn on a dime and go into inflation then hyper-inflation after the money supply is inflated too much or too fast, right?

That's the general agreement I'm hearing. And I don't this is administration is savvy enough to know when to pull back the money supply to avoid huge inflation.

So its all good until about 2030 unless our foreign born President spends more than another 10 trillion or he drives down the nation’s gdp by significant percentages. We could grow our way out of this mess they Hayek way. But the principle of compound interest and “vote yourself some benefits” makes that less likely each day, no?

I didn't think we had that long - that's good news. I'm hoping 2010 will see a turnaround in Congress - but.....I don't trust the Republicans in the Senate to rule as conservatives. With the choices we've had lately, we're damned either way.

Thanks for the thought-provoking post, steveO.