Rationalize, on Dec 2 2008, 08:09 AM, said:
If the FED buys Treasuries means it is printing money to finance government spending, right?
Money supply explosion.
They've already announced that they will by $600 billion of GSE and MBS paper. That would have the same effect and virtually everybody reached the conclusion you did. But as I've been saying, while it would seem likely that it would be direct monetization, it depends on whether they continue to attract reserve deposits apace. If they don't, then it is monetization. Whether that results in an increase in the money supply depends on what the players do with it. If intermediaries continue to hoard cash, then there will be no growth in M.
I remain a skeptic until the data tells me otherwise, and I don't trust the money supply data one iota. It' hasn't reflected the collapse of the debt backing the money. If too many economic units decide that they want their money at the same time it will bring about the collapse of not only the financial system, but potentially the US government as well given that it has taken upon itself to guarantee all this "money" in the bank, and MMFs.
We are sitting on a tinderbox and it could blow at any time if confidence sags any more.
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