nero wrote:MonteQuest wrote:When the FED gets involved in expanding credit without selling US securities as backing, then watch out.
The Fed expands credit without selling US securities all the time. The normal open market operation to expand monetary supply is for the Fed to BUY a security on the open market. The security (ie. bond) it then holds is in essence "backing" the money they put into circulation because someone in theory could redeem their currency for the underlying security (a treasury bond) held by the Fed.
Yes, they do but...
Federal Deficit Reality: An Update
There is and will be too much debt from the U.S. government for the financial markets to absorb and remain stable.
The burgeoning deficit means the U.S. government will be increasing its debt level significantly for years to come. Near term, the amount borrowed will increase more rapidly than the markets are expecting, with the economy slowing down and entering recession. The ultimate question is who will lend the money to the U.S. Treasury? The answer is not U.S. investors.
With new debt continually hitting the market, eventually the Fed will have to step in to buy the Treasuries -- as lender of last resort -- effectively monetizing the debt. The more the Fed monetizes, the greater will be the growth in the money supply, the greater will be the weakness in the dollar, the greater will be the rate of inflation.