Comment 81335

By A Smith (anonymous) | Posted October 01, 2012 at 04:19:11 in reply to Comment 81330

>> You'll note the Americans seem to be adopting the policy you espouse and are simply printing more money they don't really have.

This is what the Fed has bought with the money ($2 trillion) it has printed...

http://www.mybudget360.com/wp-content/uploads/2012/04/Fed-reserve-balance-sheet-2012.png

As you see, most of what they have printed has been used to buy existing assets (mortgages and treasuries). The banks have received cash (reserves), which doesn't pay interest, in exchange for interest bearing securities.

Furthermore, the government bonds that are held by the public are now paying lower yields, which acts as an anti-stimulus for the economy.

A real stimulus (new cash) can only come from the fiscal authorities, through the sales of treasuries, whereas the banking system creates credit that has to be paid back.

The fact that interest rates are so low is indicative of the fact that there is a great demand for U.S. savings. In this environment, the market is telling the U.S. Government to spend more, not less. In 1993, Canadian interest rates were 8%, telling us the market didn't need much in the way of new spending.

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