Thursday, March 19, 2009

I am so Confused and i am not alone Ben Bernanke and the Government must be too

Okay so today the Federal Reserve announced it was going to start buying government treasury bonds to boost the economy and prop up the market.

This $1.25 trillion i presume is not part of the $3.8 Trillion already pledged by congress et al to battle beleaguered banks and troubled home owners. But here is the thing....

The Federal Reserve doesn't have money and prints money as it needs it, the treasury department sells bonds to fund its activities and if this isnt sold to a foreign government it becomes a part of the national debt as it is purchased by the Federal Reserve with money it doesn't have.

Can one conclude that foreign governments have lost all faith in the US government to repay its debt and that the currency will devalue and is not a good investment. If so this is a doomsday scenario for the US economy and spell infinitely higher interest rates and inflation long term as well as saddling future generations with a debt they cannot pay and a country with minimal self reliance with an ever weakening currency that will buy far far less if the Yuan of China decouples.

Then the Fed will buy toxic loans essentially following the banks into what caused the credit crunch in the first place, thus allowing banks to offload more bad debt off the balance sheets and into the government coffers..... Could the Dollar soon be valued in a similar way to the Italian Lira in the 80's and 90's.......

Sell Dollars and buy Yuan and Euro

Copyright Jonathan Rose 2009 - Creative Commons License

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