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(Global Geopolitics)   BRICS nations get a little itchy-biatchy over US money printing, decide to mitigate the impact of a stronger U.S. Dollar   ( divider line
    More: Interesting, BRIC, note, BRICS nations, capital controls, U.S. Federal Reserve, Xi Jinping, global economy, financial markets  
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1390 clicks; posted to Business » on 25 Jun 2013 at 8:37 AM (3 years ago)   |   Favorite    |   share:  Share on Twitter share via Email Share on Facebook   more»

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2013-06-25 02:36:50 PM  
1 vote:

Debeo Summa Credo: Assume the treasury has to issue $60b per month to fund the deficit.

If all $60b of that comes from investors, there is no money created. Every dollar that went to buy treasuries already existed and was held by investors prior to buying treasuries.

If the fed is buying $40b of those treasuries (these numbers are realistic in today's environment), only $20b comes from outside. The other $40b was created by the fed to buy treasuries. The fed basically says to the treasury: here's $40b of crisp new dillar bills to buy stuff with, pay us back later. Yes, interest rates are affected by this, because the newly created dollar bills are a supply of capital that drives down equilibrium interest rates. But new money is created. If and when the fed shrinks it's balance sheet, money supply is reduced.

But there's no difference between having a bond that says $1 on it than having a piece of cotton paper that says $1 on it.  Not while interest rates are effectively 0.  Trading one for the other isn't creating anything, just changing the name.  In both cases, there's $1 in your hands, and $1 in that of the feds.  You can trade those two all year long, and both sides will still only have one thing with $1 on it.  Nothing is made.  No money is printed.
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