The View From 1776

The Fed vs The Fed

The Fed faces a dilemma of its own making.  It will torpedo its own earnings, as well as the economic recovery, if it tries to stem inflation when bank loan demand increases.  Will it instead, with the connivance of the Treasury, monetize the Federal debt and let inflation soar?

 

Posted by .(JavaScript must be enabled to view this email address) on 06/01 at 11:23 PM
  1. We have about $7 trillion of our public debt in short term bills and notes. Many pay an interest rate of .2% to .28%. That means for each 1% rise, interest on that debt goes up 500% and that is why the President's own projections on interest when compared to his projections on tax revenue, show interest payments consuming 8.6% this year and goes up each year to 19.3% of projected tax revenues by the end of this decade.

    He show GDP peaking in 2014, and then declining. He show deficit spending dropping to a still massive $700 billion by 2014 and then rising to over a trillion again by the end of the decade.

    The CBO says this is based on no economic downturns, no unexpected changes in lender and investor sentiment, etc. They said that is because they have no way of factoring in the real world in their projections.

    The FED is definitely between a rock and a hard spot and as this financial think tank states,

    quote
    A Central Bank can also go bankrupt when its balance sheet consists of
    Posted by JanPBurr  on  06/01  at  11:57 PM
  2. Although there is no evidence at this moment of an inflationary trend, we are shaking in our boots that one will occur.

    Cutting spending now to prevent non-existent inflation is exactly what is not needed during this fragile recovery. Cutting spending will only endanger the market recovery.
    Posted by .(JavaScript must be enabled to view this email address)  on  06/02  at  08:10 AM
  3. That is true that cutting spending will endanger the market recovery, not cutting it endangers the dollar and the economy and jobs too, but later.

    There is no way out of this but, delaying does allow some that see where this leads, to prepare better.

    Not cutting spending means we will have close to 20% of tax revenues going for interest on debt and that can happen quickly. Thus, we would either have to try and borrow for interest on debt or borrow even more for mandatory spending like health care, social security, welfare, unemployment, food programs. etc.

    Page 16
    The large amounts of federal debt that would accumulate under each of CBO
    Posted by JanPBurr  on  06/02  at  09:29 AM
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