The Fed just printed $7,400,000,000,000.00

You're going to have to do a way, way better job of analogizing the sale of low-interest short term US Treasuries to a consumer borrowing against an overvalued home - because it's not making any sense now. What is the underlying overvalued asset that is being borrowed against here? The US is the one selling by the way, not buying US treasuries for speculative purposes.

 

in case you didn't notice, deflation was on everybody's plate last week. I'm not worried about this - anyway why do you necessarily beleive the dollar is overvalued? You are saying that the dollar should be at over 2/sterling and 1.65/Euro like it was over the summer? Why is this the natural order of things - if anything that was simply pre-Euro bubble popping which caused that imbalance. Plus your analogy still doesn't make sense.

 

LOL yeah emerging markets and commodities have been real winners the last few months....I wish...lol.

Anyway - I don't see the cliff-like drop of your graph as a short term blip.
But even presuming that this does happen - you have yet to make a case for why it is bad for the US to engage in short term borrowing at incredibly attractive rates.

 

Point is all this looks good in short sided vision.

The dollar is strong because everyone who wants a cash position (liquidity) globally (and many do with credit shrinking so fast) are buying dollars. It is the best of the worst of fiat currencies globally.

How in the world can selling treasuries be anything but more debt regardless of the interest? I don't care if it goes to '0' interest, big help that was to Japan.

Where does this magical money come from?

How does money supply expand unless it is an increase in debt?

 

Nobody's saying it's not debt. Right now, the money is needed, and it also happens to be a relatively cheap time for the government to borrow.

 

We're 2 pages into this thread and I still can't figure out why people are telling me it's bad for the government - which is going to sell debt anyway - should not sell debt on the most favorable terms it's ever going to get.

 

Because no matter how you spin it, taxpayers are the only ones who are footing the bill... you act like the government is going to pay it all back apart from you and I and every other wage earner.

It is a house of cards.

I think at this point people in Washington are totally panicking and don't even know what is going to happen even 5 years from now with the debt load already threatening to break into rampant deflation and the new administration stating up front spend spend spend (which is borrow borrow borrow) and forget about the deficit.

Bush was stupid, but this is insanity.

 

There are plenty of economist who are not conservatives or right wing who understand the fundementals that we are making bad short term panic survival type decisions that will only serve to place us in worse position later.

Ultimately consumer debt is overloaded, govt. debt is threatening to get unmanageable and only one of two things can happen, we can stop borrowing/spending and allow the economy to contract and try to survive a very hard recession or we can band aid it some more with govt. debt until either hyper inflation or hyper deflation destroy the wealth and standard of living of the US.

It is impossible to solve this by borrowing more money because the problem is that bad debts like subprime mortgages have triggered a liquidity crisis in financials because there is too much leveraged debtload gloabally. Banks don't have liquidity, they have excessive debt.

If the debt load wasn't so high the bad loans could be written off by the banks.

The banks can't borrow. Only the govt. is stupid enough to borrow.

I don't see all the trillionaires of the world rushing together to get a piece of the action! (if Mr. Buffet thinks all this is so great he should get about 10 of his trillionaire buddys together and beat the govt. to the bailout bonanza)

 

There really is no debate on the economy,

Titanic has already hit the iceberg and is taking on water.

Market forces will solve this inspite of what the govt. does.

Better get the women and children in the lifeboats.

Signed your friendly economic pessimist who wonders if the debt is actually known at all... maybe total US debt is 30 trillion, maybe 50 trillion who really knows? How much is leveraged in derivitives?

What's a few trillion among taxpayers.

Would anyone object to the govt. borrowing more money and paying off all consumer loans or all mortgages, or both?

I think I would feel that kind of stimulus.

 

From what I understand the US debt it huge. Our economy is the biggest of all time, by far, but the percentage of debt to GDP is not unbelievably high. It is the highest it has been in the US for many years.

 

No - I gave you one sentence from the article that erased half the total. If you actually look at everything else that has been spent, it would reduce the total a whole lot more.

I believe just about everything has been loaned or invested thus far. The Bear Stearns bailout, for example, has been more profitable than expected for the gov't. If these businesses don't fail, the government has had a net longterm cost of $0 at this point, and if the financial sector recovers, the government makes a net profit since they are buying assets in the form of preferred shares. For example, I believe the $20B Citi bailout today includes preferred shares AND an 8% dividend - meaning the gov't is borrowing money at 2-3% and getting an 8% return on it annually, and then eventually can sell its shares and get its money back entirely (if not more).

 

This isn't the case. If a business sells commercial paper today to pay payroll to cover the 10-days until they get the revenues from their big sale, then that commercial paper gets paid back in 10 days. Yes, they can keep rolling over the commercial paper - but they pay interest on it. So the government is making money on that (it's a perfectly healthy interest-producing financial asset that the gov't holds), meaning it doesn't cost taxpayers anything.

How do you get to the point where the taxpayers pay it back?

 

you appear to be predicting both inflation and deflation simultaneously . . . Pick a side.

 

Banks pay back commercial paper by making alot more loans and selling the loans. banks make money off of debt nothing else.

So if the liquidity is tight and the banks can't make loans they are stuck with no place to sell off the commercial paper, that is exactly why the govt. buying it.

This is like a Clinton love fest- Rueben who was Clinton's treasury secretary runs Citicorp, guess who's getting the next big bailout- Citi

The next treasury secretary was running the New York Fed that has the prime responsibility for bailing out the first few 100 billion purchased by the govt.

No they do not pay interest on the commercial paper because they are broke.
The govt. is only buying the commercial paper to give them liquidity to get the big boys out of trouble. The banks aren't going to be able to start another credit bubble.

Normally they would sell the commercial paper and then make alot of loans with the creap credit, sell the loans and pay off their short term obligations.

But the mortgage bubble has popped like all the other bubbles.

So they can't sell the commercial paper- enter the Fed!

This commercial paper will be a write off to the banks and a burden to the taxpayer.

There I fixed the post.

Commercial paper is nothing more than a big banks line of credit, there is no collateral except the banks ability to keep loaning money at an unrealistic pace.

 

SamFisher, it is hard to tell which way it is going to go over the next 4-5 months.

deflation is more deadly to the job market because that is usually the result of a fast constriction in the economy-

inflation is simply a dollar write off which at this time is not happening because the rest of the globe is buying dollars and our debt still.

But inflation will be triggered at some point because we are about to see alot of govt. debt flood in through the new economic stimulus.

The relationship between money supply and inflation is obvious but the relationship between money supply and debt depends on how fast the credit hits the consumer and our trade balance.

If prices go up because the Chinese economy is heated up then inflation will probably be the dagger.

If credit stays tight and interest rates stay low then deflation will probably be the dagger.

I have no idea which way the global economy is going to respond to all the Fed money, if they keep buying up our debt then expect inflation to come home here.

If they don't want our debt expect our credit to tighten into drought condition and deflation hit.

Deflation is the most dangerous IMHO because there could be massive unemployment.

 

That is where you are mistaken, the bailout was about creating liquidity in the credit markets by purchasing toxic assets off the balance sheets of these "too large to fail" banks. We took this poison pill so that credit and lending would still be widely available to companies and individuals. However this purchasing straight equity in the banks doesn't help the fact that those toxic assets are still out there and sooner or later these banks will be back for more money. The function of government is to ensure policy that is in the mutual benefit of all the people. This was never about protecting banks from market scrutiny and natural selection. We were led to believe failure of these banks would have domino effect and the entire economy and would lead to crippling our system. The government and its financial arm the taxpayers are not interested in making money from these massive loans if that is what is the true purpose of such endeavors.

 

Exactly. Which is why now is not the time to balance the budget.