Here comes the flood of dollars.

[roamer65]

http://www.bloomberg.com/apps/news?pid=20601087&sid=aCqvVS7Zk7ZQ&refer=home

Quantitative easing = debt monetization.

Germany 1923 here we come.

[oldtime dfl_er]

1. so...does this mean

running to the bank with wheelbarrows full of cash that isn't worth anything?

If I can't "keep my money" in stocks, in real estate, or in cash, and I can't afford to buy gold, I'm kinda screwed huh?

[roamer65]

4. There is one big hidden monetary fact of the Great Depression.

Why did the money supply constrict so badly during the 1929-1933 stretch of the Depression? A large amount of paper currency in circulation was Gold Certificates. People lost so much trust that they took the notes into the banks for redemption into gold coin. They figured gold in hand was much better than a paper promise. The result was a large constriction in the money supply until Roosevelt took us off the gold standard in 1933.

You'll have make a judgment on gold this time around, but it is definitely the "incorruptible currency" IMHO.

Everyone is screwed in a economic environment like this one :(

[Odin2005]

14. Double post.

n/t.

[Odin2005]

15. And the Fed just sat there doing didly squat when it should of been pumping money into the economy.

Thank God Bernanke is a Keynesian who understands what the fuck he is doing.

[OwnedByFerrets]

2. When you have as huge a debt as we do, the only thing to do

is devalue the dollar. Let the rabble eat cake.

[Zynx]

3. We are so far away from having inflation right now it's worth the risk.

[magellan]

5. I don't get it

They're afraid of deflation -- which I understood would only be short-term before (hyper-)inflation bit next year -- so they're going to print even MORE dollars?

I admit, I don't understand much about any of this. But flooding the world with even more dollars in this situation doesn't make the least bit of sense to me. What are they thinking? Does anyone know? Are they purposely trying to devalue our currency until it's worthless? Because that's what it seems like they've been doing for a few years now.

[Zynx]

6. Deflation is a long term risk in an economy this bad. I think they thought the recession

would be somewhat shallower. Not too many people are expecting a recovery next year anymore.

[magellan]

10. Thanks, Zynx. Another question

Everyone is in Treasuries right now. Is that what's holding up the dollar? What could make investors flee Treasuries, and what would be the result if that happened?

Sorry, that was a few questions. :)

[Zynx]

11. Economic models actually often say that budget deficits actually result

in a stronger currency, however that only goes so far. The basic logic behind that is that a budget deficit results in a stronger economy and thus results in stronger demand for the domestic currency. However, if a budget deficit becomes too extreme it becomes a threat to foreign investment because foreign investors will become frightened of the government bonds and pull out as they fear for the government's solvency.

The dollar is indeed largely being held up right now by virtue of the fact U.S. Treasuries are historically the safest place to be and demand for them has created strong demand for the dollar. Also, inflation has been broken and that is also good for the dollar.

[magellan]

16. So we're walking a tightrope

...with a lot of lurching back and forth to steady ourselves?

Quite honestly I'd feel much better about what Paulson and Bernanke are doing if they didn't represent the very same philosophy that got us into this mess. I find it impossible to trust their judgment when they claim not to have even understood how bad things were.

Anyway -- interesting. Thanks again.

[Zynx]

17. I have to confess that the economic training I have received in the university setting

has not been entirely useful during this mess. It provides A method for looking at the crisis. Unfortunately, it is certainly not THE method.

[Jack Rabbit]

18. The Fed stopped reporting M3 in 2006

The government doesn't report M3 any more.

What is M3? Well, take a look at this article:

The Federal Reserve tracks and publishes the money supply measured three different ways-- M1, M2, and M3.

These three money supply measures track slightly different views of the money supply.

The most restrictive, M1, only measures the most liquid forms of money; it is limited to currency actually in the hands of the public. This includes travelers checks, demand deposits (checking accounts), and other deposits against which checks can be written.

M2 includes all of M1, plus savings accounts, time deposits of under $100,000, and balances in retail money market mutual funds.

But that is all small potatoes, M3 includes all of M2 (which includes M1) plus large-denomination ($100,000 or more) time deposits, balances in institutional money funds, repurchase liabilities issued by depository institutions, and Eurodollars held by U.S. residents at foreign branches of U.S. banks and at all banks in the United Kingdom and Canada.

In a well-functioning market (at least one that isn't rigged), if you have a shortage of apples, the price goes up. What do we do about it? Produce more apples, of course. Then the price goes down. That is assuming the money supply remains constant.

Now let's put this in reverse. Assuming the supply of apples remains constant, if the government prints more dollars, then the price of apples goes up. In fact, so does the price of any other commodity.

That is how M3 (or M1 or M2) effects inflation. However, since the Bush Junta, being the secretive bastards they are when they try to cover up their fuck ups, they don't let us know what M3 is any more. So, whatever inflation rates have been reported for the last two years just might be as accurate as the reports of weapons of mass destruction in Iraq we kept hearing in late 2002.

[Zynx]

20. We did see a 10% increase in the PPI in the last year. That's pretty huge inflation.

However, that will come undone in very quick fashion with the absolute and utter collapse of commodity prices.

[magellan]

21. Yes, this is what worried me most about the OP

We know they've been running the printing presses pretty much non-stop since 2006. Last time I visited ShadowStats, year-over-year growth in M3 was estimated to be 14%. That's why I don't trust what they're doing by printing even more money. I'm not sure why they think deflation is a threat with such a huge (and unreported) money supply out there already.

[leftstreet]

7. "The Treasury is also heading into uncharted territory

as it taps capital markets for cash to help finance its bailout fund for the banking system and plug holes in the federal budget caused by the weak economy.

Money From Abroad

Much of that money will come from abroad. “Foreigners don’t seem to be interested in any kind of risky U.S. asset,” says Brad Setser, a former Treasury official now at the Council on Foreign Relations in New York. So, “instead, they are buying Treasuries.” That includes China, which recently passed Japan as the biggest holder of Treasuries."

[roamer65]

9. Soon they'll have no interest in Treasuries...

and that is when the real economic fun will begin.

[lonestarnot]

8. We are very fucked.

[backscatter712]

12. Ah, inflation, also known as the backdoor way of raising taxes.

The rethugs haven't had the gumption to raise taxes, so instead, they print more money so they can finance their debts. The effect is the same - our money loses value, we get screwed, but inflation is a hell of a lot harder to control and manage than taxation, so more people get shafted. That and while taxes can be progressive, inflation is always regressive in the way it hits people's finances.

[Odin2005]

13. We are more at risk of deflation, not inflation, right now.

Helicopter Ben's comments about dumping dollars out of helicopters didn't come out of some malicious desire to destroy the US economy. He's an expert of the Great Depression and one of the forces that fueled the Depression was deflation. To cure deflation you need to increase the money supply, which the Fed refused to do after the 1929 Crash.

[roamer65]

19. Hard to say which route it will follow.

It all depends on the level of increase in the money supply.

But I solidly believe this will be a double dip recession/depression, as they try to restrict the money supply growth months from now in order to control inflation.

Roosevelt had the same problem in 1937 when he tried to take his foot off the fiscal stimulus "pedal". We slipped back into recession.

[Hannah Bell]

22. I read something this morning, the gist was that in a deflationary economy,

"printing money" was actually interest free & a good move - not hyperinflationary.

It made sense at the time, i'll try & find it again.