Gordo wrote:
I don't think you understand how secondary markets work. For every seller of a treasury bond, there is a buyer. They call that an "exchange". Investors can sell all the bonds they want, but that can't cause a decrease in money supply (it can and WILL cause a run up in rates however).
Any holder of US dollar denominated debt that is close to expiration can CHOOSE to not exercise their option to repurchase.
If many holders of notes and bonds were dumped on the market at once (in a panic), that would likely cause prices to collapse.
In the words of Rbert Prechter "if this were to happen, the net result of an attempt at inflating would be a system-wide reduction in the purchasing power of dollar-denoiated debt, in other words, a drop in the dollar vaule of total credit extended, which is deflation".
The point above being, they can't just keep doing what they are doing, contrary to popular belief - eventually investors will panic.
They can increase all the money supply they want. At the end of the day, if there aren't willing participants, it's all irrelevant.
9 trillion doallars of money set aside has done little if anything to change that.
Lenders fearing default are not lending. Borrowers, already stretched to the max, don't want to borrow any more and are more focused on paying off their existing debts.
Why? Social mood takes on a life of it's own and governement intrusions or external factors have done little to change that.
Also, I'll quote Prechter again about printing money, because there's an important distinction that should be mentioned.
"A more complex answer begins with the understanding that analysts constantly confuse credit creation with money creation. …credit is not money. Economists speak of “the money supply” as if they were referring to money, but they are not; for the most part, they are referring to credit. When credit expands beyond an economy’s ability to pay the interest and principal, the trend toward expansion reverses, and the amount of outstanding credit contracts as debtors pay off their loans or default. The resulting drop in the credit supply is deflation".
All the US government is doing is more of the same that got us into this mess in the first place. Do you actually believe that doing more of the same is going to get us out?
Gordo wrote:
p.p.s. I love it when I hear people talk about deflation as if its some little known secret. Give me a break, the mainstream media has completely embraced the deflation story and they are as enamored with it now as they were with the inflation story when oil was $150/barrel and on its way to $200
Actually, it was only recently that the media even dared talk about deflation (so called experts too). But you are correct, the conversation is changing - and it's about time.
We haven't seen such a situation is most of our lifetimes and comparing it to the recent past isn't applicable.
Thinking governement can do anything to fix it is a sense of false hope IMO - or it'll be something that we will find out shortly.
Tobyguy