What does "Monetize the Debt" mean?

Hello. I keep hearing that the government is going to monetize the debt, so I looked up "Monetize". Monetize: 1. To turn anything into money. 2. To convert government debt into currency. Does this mean that they package up the debt and sell it like a bond, and then hope the economy improves (or print money) when it comes time to pay the obligation? Also, do they literally print money, or do they do something electronically. Can somebody tell me or point to a good source for the information? Thanks, Joe

Hello.
I keep hearing that the government is going to monetize the debt, so I looked up "Monetize".

Monetize: 1. To turn anything into money.
2. To convert government debt into currency.

Does this mean that they package up the debt and sell it like a bond, and then hope the economy improves (or print money) when it comes time to pay the obligation? Also, do they literally print money, or do they do something electronically. Can somebody tell me or point to a good source for the information?

Thanks,
Joe

Print money electronicly or paper.

#2 option.

Treasury issues debt Fed buys debt (Asset Side of Balance Sheet) Fed increases its liabilities - i.e. the amount of Federal Reserve Notes (Dollars) in circulation - by passing fresh money/cash electronically to Treasury accounts.

Traditionally, monetizing the debt means to inflate it away.

This is actually a good strategy in the current environment.

Right now, we've got zero inflation. Maybe deflation (but I doubt it). Certainly, there's a serious risk of deflation and as such, you can buy stuff and services at bargain prices. Government can also borrow money at generationally low rates. So, they borrow a ton to stimulate things, at say, 3.5% for 30 years.

Then, they get the economy rolling again, and inflation bumps up to say, 5%, with growth at say, 6%. Over 300 years, that huge debt is worth on average about half, but also the interest rate on it is less in real dollars each year.

That's why we're going to see inflation. They want it. They need it. They also need growth, so they can't over-inflate. They will, but they're going to try not to. I'm thinking that we'll get a couple of bad years, but that they'll risk another down turn in order to keep it in the 2-7% zone.

Now, the mechanisms of "how" are tricky. What I was taught in college is no longer the case. I'll let the smart wonky dudes here 'plain that part.

Mark

Hello.
I keep hearing that the government is going to monetize the debt, so I looked up "Monetize".

Monetize: 1. To turn anything into money.
2. To convert government debt into currency.

Does this mean that they package up the debt and sell it like a bond, and then hope the economy improves (or print money) when it comes time to pay the obligation? Also, do they literally print money, or do they do something electronically. Can somebody tell me or point to a good source for the information?

Thanks,
Joe

Here's the thing: Heisenberg uncertainty principle applies to financial markets. Bernanke thinks we are in a little jar and are unaware of his little variable tweaking. He's used to extrapolating the future from the past. The problem is, that is linear way of thinking. The non-linear way of thinking is that the participants can see what he's doing, and what he's trying to do, and react in accordance to it. In other words, we in the jar can see what the lab coats are doing and behave differently. If the lab coat man was much much smarter than us, then we may be incapable of understanding it, thus the experiment is intact. Unfortunately, that's not the case. He's actually not as smart as some in the jar. So when everyone sees he's trying to inflate the economy, they will try to front run it. Then when everyone gets on the same boat, then no one can profit from it and the actual inverse occurs. The harder he tries, the harder he's trying to push a string. So now its crystal clear that inflation will come. So clear that even a 5 year old can see it. The end result? Yes it will come due. But not until majority who saw it decides it won't happen and disbelieves the outcome. People are different than animals in this respect. We can think too much.

Here's the thing:

Heisenberg uncertainty principle applies to financial markets. Bernanke thinks we are in a little jar and are unaware of his little variable tweaking. He's used to extrapolating the future from the past. The problem is, that is linear way of thinking. The non-linear way of thinking is that the participants can see what he's doing, and what he's trying to do, and react in accordance to it. In other words, we in the jar can see what the lab coats are doing and behave differently. If the lab coat man was much much smarter than us, then we may be incapable of understanding it, thus the experiment is intact. Unfortunately, that's not the case. He's actually not as smart as some in the jar.

So when everyone sees he's trying to inflate the economy, they will try to front run it. Then when everyone gets on the same boat, then no one can profit from it and the actual inverse occurs. The harder he tries, the harder he's trying to push a string.

So now its crystal clear that inflation will come. So clear that even a 5 year old can see it. The end result? Yes it will come due. But not until majority who saw it decides it won't happen and disbelieves the outcome.

People are different than animals in this respect. We can think too much.

Eh, no. It then becomes a self fulfilling prophesy.

I think you've got it exactly reversed.

M

All this proves that those 'in control' (the bankers/federal reserve) don't know what they are doing, otherwise we would not be in the trouble we are in now. So people that just caused the ship to hit the rocks are now going to steer the ship again. Stay close to the life boats.

The quote from the article link below is well worth reading as to what is going on now...


http://chronicle.com...6h07p4hy9z83x18
"As in 1873, a complex financial pyramid rested on a pinhead. Banks are hoarding cash. Banks that hoard cash do not make short-term loans. Businesses large and small now face a potential dearth of short-term credit to buy raw materials, ship their products, and keep goods on shelves.

If there are lessons from 1873, they are different from those of 1929. Most important, when banks fall on Wall Street, they stop all the traffic on Main Street — for a very long time. The protracted reconstruction of banks in the United States and Europe created widespread unemployment. Unions (previously illegal in much of the world) flourished but were then destroyed by corporate institutions that learned to operate on the edge of the law. In Europe, politicians found their scapegoats in Jews, on the fringes of the economy. (Americans, on the other hand, mostly blamed themselves; many began to embrace what would later be called fundamentalist religion.)

The post-panic winners, even after the bailout, might be those firms — financial and otherwise — that have substantial cash reserves. A widespread consolidation of industries may be on the horizon, along with a nationalistic response of high tariff barriers, a decline in international trade, and scapegoating of immigrant competitors for scarce jobs. The failure in July of the World Trade Organization talks begun in Doha seven years ago suggests a new wave of protectionism may be on the way.

In the end, the Panic of 1873 demonstrated that the center of gravity for the world's credit had shifted west — from Central Europe toward the United States. The current panic suggests a further shift — from the United States to China and India. Beyond that I would not hazard a guess. I still have microfilm to read.

Scott Reynolds Nelson is a professor of history at the College of William and Mary.

In order to reflate, someone needs to take on that additional debt. The question is who will that be and why would they do it? I am debt free and sure as hell ain't looking to change that anytime soon. And yes, that is a self fulfilling prophesy

I intend to spend a portion of my savings on growing my business. I suspect that I will not be alone. Mark