Question for the economic wonks on the board about the printing of 600 billion dollars

[beforeyoureyes]

Here's a brief article about it for anyone who hasn't heard about it....

http://www.chillicothegazette.com/article/20101112/OPINION04/11120309/Will-Federal-Reserve-printing-600-billion-work-

I have to confess, I am not 'learned' on the subject of economics and I was wondering if some of the wiser economic minds on DU could explain the repurcussions (or benefits?) of this move.

My gut instinct is that this move will crash the dollar. I am wondering if this might be orchestrated on purpose. It is a method to crash the dollar and force a global currency system onto the US. A global currency system seems as if it would be a corporate wetdream come true.

I am just wildly speculating here, but I thought I would toss it out to the board and see if we could get some clarification and analysis from wiser economic minds. This is such a big issue, and I am sure I can't be the only economic ignoramus on the board.

Please advise.

[somone]

1. FWIW - What the Fed's $600 Billion Plan Really Means

http://finance.yahoo.com/tech-ticker/what-the-feds-600-billion-plan-really-means-yftt_535568.html

Great for corporate borrowers, bad for people on fixed incomes.

[katanalori]

2. Well, where we are at now................

The private sector cannot sustain itself without public support. In order to hold up the private sector, at least at its present levels, support for the real economy has got to exist in one manner or another.

It appears that Congress is not going to allow fiscal stimulus to do the heavy lifting in order for there to be hope for a recovery.

In light of this, the Federal Reserve must step in to backfill the void. Without it, the real economy in America will be facing increased contraction, i.e. deeper recession.

Caveat: It appears that the Euro-zone (Europe) is cratering again. If that should happen, then the dollar will strengthen with the "flight to quality," which could make the Federal Reserve's job easier.

[Safetykitten]

3. This cleared it up for me.

http://huff.to/ccU9rR

[OHdem10]

4. I am no economics major, but here is what I have picked up.

The ecomomy is slowly recovering but I heard Bernanke
say when he testified before congress. The Economy
is recovering but he is concerned that terrible
unemployment pulling us back down.

He strongly suggested a second stimulus, at least believe
the employment being a drag on the economy requires a fix.
Money needs to be circulating through out the economy at
all times. I have to assume the Deficit Hawks chose not
to use his advice on providing another stimulus. He had
said that if there was no stimulus he would try the quantitative
easing--printing money and circulating: hoping this will
keep things stable while the economy picks up more strength.

Once the congress reconvenes they may do Infrastructure
Spending(do not say stimulus).

One of the consequences QE2, you are correct, can cause
a drop in the dollar. He is not doing this to lower the
dollar but it can and sometimes does cause the dollar
to lose value. As I understand it. He weighs the risk
and decided we will live with a lower dollar but must
keep thing stabalized. This is no economic explanation.

[Skink]

5. The fact that China and some other countries are upset about this should be enough?

they're like hey why you didn't come to us for the loans. Did we do something like manipulate our currency? C'mon keep borrowing from us.

This isn't a last resort for fixing the economy. It is a pre emptive strike against our do nothing congress.

[BzaDem]

6. It will not crash the dollar. Inflation does not happen with huge idled capacity. Printed dollars

first go to create demand and activate unused capacity (i.e. factories, the unemployed, etc).

Only after we are at full capacity (or something close to it) will inflation start to occur, and the Fed will tamp down their program before significant inflation arises. Normal inflation at this point would be a great thing, because it would signal that demand is coming back. Right now inflation is dangerously low and bordering on deflation.

[Taitertots]

7. "Crash the Dollar" Certainly not going to happen

No one wants a global currency. Big business doesn't want this, governments don't want this, and the FED absolutely doesn't want this.

[jtuck004]

8. Well, we loaned $23 trillion to "wall street", of which they are likely keeping

about $3.2 trillion, (even while they are continuing to bring in billions from the Treasuries that were used to prop them up with) and THAT (<-- link) didn't crash the economy, and then we invested $800 billion into "main street" stimulus, and THAT didn't crash the economy.

So why would spending $600 billion more wreck everything? More likely, if it doesn't get spent in a way that increases demand the short-term impact is more likely to be wealthy people getting wealthier and nothing else changes very much.

Here is a good article on not equating the U.S. Federal monetary system with someone's household budget - which is what underlies the scenario in the post above.

Far more dangerous is the continued unemployment or underemployment of over 30 million people, a scenario that could well take nearly two decades to resolve even with outcomes that nobody is prepared to live with.

[DeltaLitProf]

9. Don't confuse Fed money with taxpayer money

The Fed's money is not taxpayer money. I hear Republicans trying to promote that untruth on radio talk all the time. When it prints more money it does not add to the federal budget deficit. Strictly speaking printing money is not spending it.

This article is helpful on this score:

http://www.pbs.org/wnet/need-to-know/economy/the-true-cost-of-the-bank-bailout/3309/

[jtuck004]

11. True enough. When they create those zeroes, however, the money

is used to buy Treasury Bonds which are backed by, and therefore a liability of, the taxper. But now as we wind our way through the mess created by the leveraged debt which by some accounts was in excess of $100 trillion in derivatives held behind the veils of the Fed and the investment banks, guarantees by the taxpayers leave us with a further potential liablity. This does not include losses the Treasury took on directly.

Why would Paulson have asked Congress for the authority to spend the initial 700 billion if it wasn't taxpayer $?

The entire mortgage makerket is being held artificially high by FASB edits, so that may yet prove to be a loss. The treasury has given some banks and mono-line insurance cos money directly. There may well be derivatives with a liability contingent on the future course of the markets should the artificial value of assets deflate. And from what is known there may be a huge taxpayer liability.

http://money.cnn.com/news/storysupplement/economy/bailouttracker/

http://www.nomiprins.com/reports/ <- the early reports here, as well as her book, showed that there has been as much as $23 trillion in direct funding or guarantees by the taxpayer since this began.

http://bailoutnation.net/

[Hannah Bell]

10. they did something similar in japan. it didn't crash the yen, & it didn't

cause hyper-inflation.

dean baker explains some of the esoterica here:

http://www.huffingtonpost.com/dean-baker/currency-wars-and-account_b_754739.html

There are few areas of economics more boring than accounting identities. This is really unfortunate, since it is virtually impossible to have a clear understanding of economic policy without a solid knowledge of the underlying identities.

The basic logical problem stems from the simple accounting identity that national savings is equal to the broadly measured trade surplus. A country with a large trade surplus will also have large national savings. Conversely, a country with a large trade deficit will have negative national savings. These relationships are accounting identities -- there is no way around them...

Many of the same people who routinely express horror over the size of the budget deficit, were either on the sidelines or in actual opposition to the effort by Congress to get China to raise the value of its currency against the dollar. While one can argue as to whether the bill approved by the House was the best route to go, anyone who hopes to get the trade deficit down must recognize the need to lower the value of the dollar. And, if one wants to get the budget deficit down, then it is necessary to reduce the trade deficit.

This raises the possibility that perhaps the deficit hawks don't really give a damn about the deficit. Perhaps the deficit hawks just want to cut Social Security and Medicare and other programs that benefit the middle class and moderate-income people. Of course, it is also possible that the deficit hawks are just confused when it comes to economic policy. It's hard to know for sure, but these days ignorance and/or dishonesty appears to be the price of admission to Washington policy debates.

http://www.huffingtonpost.com/dean-baker/currency-wars-and-account_b_754739.html