Posted on 11/09/2010 8:35:35 AM PST by jpl
The rationale for QE2 is very simple, and has everything to do with the Chicoms downgrading our credit rating. The rationale is that our previous model for financing government debt was to externalize it; sell bonds on the foreign market. While not entirely advisable, it was sustainable, so long as the annual debt sale was around $400 billion. However, once it ballooned to $1.4 Trillion, foreign governments could not sustain it. There just isn’t that much credit in the world markets to buy up that much debt. Not year after year, which is what we’ve done and where we are headed for the forseeable future.
So if we can’t externalize the debt, as long as we are running $1.4 Trillion deficits, the Fed has NO CHOICE but to internalize (monetize) it. We sell the bonds to ourselves and print the money to cover it. Inflation will result, and interest rates will go up. A lot. If you are a bank, you can’t lend money at 5% while the value of the monetary asset depreciates 10% annually. The interest rates have to remain above the inflation rate or the banks go under.
By the way, for all you history buffs out there, our old model is how the British financed WW1. They sold bonds on the New York market. Our new model of internalized debt is how the Germans financed the same war; they sold themselves short-term notes because they were frozen out of the New York market. Guess who had the hyper-inflation? That’s where we are headed, and the Chicoms are not stupid; they see it happening and that’s why we’ve been downgraded.
I’m worth $50 million...in Zimbabwe dollars. Meaning that we may all be trillionaires soon enough and it will mean that all of together won’t be able to buy a loaf of bread.
China can help us solve this problem.
They can take Obama and his hate America crap away amd put him up in the Chinese Gulag.
Obama is the root cause of this derelict US fiscal policy.
Palin is all over Bernecke. And all America should be.
You really think they knew that ma and pa your neighbors were lying about their income?
China’s trade policy depends upon an underrated yuan which is linked to the US dollar deliberately. If the US inflates then China must cut the yuan as well or give up that policy.
This in not exactly objective or dis-interested opinion.
We have to bite the bullet and start over. Communists must be ousted.
Oh please.
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