Fed playing Santa
#1
Posted 29 December 2006 - 12:36 PM
#2
Posted 29 December 2006 - 02:30 PM
explains clearly that in order for Fed to keep printing money
there has to be willing borrowers!
There is an old saying that you can lead a horse to water, but you cannot make him drink. The human corollary is that you can offer a man a loan, but you cannot make him borrow. In spite of what Bernanke says, the Fed does not "print" money. It must loan it into existence, but this requires willing borrowers. Consumer spending powers 70% of the US economy. So how do lower interest rates translate directly into money in the pockets of US consumers? That's what newly homeless consumers will need, in order to keep "powering" the economy. Of course credit card rates will go down, but will that be incentive enough to continue spending?
#3
Posted 29 December 2006 - 02:53 PM
But can Fed really print limitless money? The following excerpt
explains clearly that in order for Fed to keep printing money
there has to be willing borrowers!
There is an old saying that you can lead a horse to water, but you cannot make him drink. The human corollary is that you can offer a man a loan, but you cannot make him borrow. In spite of what Bernanke says, the Fed does not "print" money. It must loan it into existence, but this requires willing borrowers. Consumer spending powers 70% of the US economy. So how do lower interest rates translate directly into money in the pockets of US consumers? That's what newly homeless consumers will need, in order to keep "powering" the economy. Of course credit card rates will go down, but will that be incentive enough to continue spending?
The government is always willing to borrow from the Fed. So in essence, fed CAN keep printing money. Anytime the government needs something, the helicopter comes flying by...
#4
Posted 30 December 2006 - 02:14 AM
When the US congress authorizes spending and it is signed by the president,
the US Treasury can then issue Treasury obligations (notes, bills & bonds) to
domestic and foreign lenders. If that is not sufficient to cover the authorized
expenditures, then the Federal Reserve can issue Repo's to banks, which then
the banks can loan out to customers.
So, every dollar spent by the government must be covered by someone willing to
pay cash to buy Treasury obligations or willing to take a loan from a bank which must
be repaid with interest to the bank which then in turn can repay the Fed.
Many people wrongly assume that Bernanke can print any amount of dollars he wants.
That is not the reality.