Bernanke would likely just start buying state and local debt, just as he is doing at the federal level with US Treasuries/MBS from Fannie and Fraudie.
I believe buying state and municipal bonds would be a violation of the Federal Reserve act, but since when did the law apply to Bernanke?
RE: I believe buying state and municipal bonds would be a violation of the Federal Reserve act, but since when did the law apply to Bernanke?
State and municipal governments are so broke, and so desperate, that they are taking unprecedented steps to at least temporarily avoid bankruptcy. Nearly every state in the union is talking about legalizing some form of gambling, to boost tax revenue. California still wants to legalize marijuana, even though it was defeated in the recent election.
Of course, none of these ridiculous steps will work in the long run.
And the truly amazing thing is that the U.S. Federal government is in EVEN WORSE shape than the local governments! The only reason we haven’t seen the full brunt of this crisis yet on the federal level is because we’ve just continued to pile on more and more debt.
The states can’t print money... but the Federal government can (at least for now). And for the moment, this is all that is preventing a currency collapse of unprecedented proportions.
And this is the important point: What most people don’t realize is that the U.S. government can only continue printing dollars... as long as the U.S. dollar remains the world’s reserve currency.
Most Americans don’t believe the U.S. dollar could ever lose its spot as the world’s reserve currency. The question is this -— IS THIS STILL A VALID ASSUMPTION ?
Cheng Siwei, a former vice-chairman of China’s Standing Committee, said that China is going to stop putting so much money into U.S. dollars, and will instead look to the Japanese Yen and the Euro.
China holds more U.S. dollars than anyone else on the planet. But China is getting out of the U.S. dollar as fast as they can without crashing their own economy.
The New York Times reports that: “now, many shops in China no longer accept dollar-based credit cards issued by foreign banks... and foreigners cannot convert American dollars into renminbi beyond a given quota.”
Given all these factors, I cannot help but think that it’s not a matter of “if” the U.S. dollar will lose its status as the world’s reserve currency... it’s simply a matter of “when.”