Every one knows about the huge amount of debt that the US government has piled up in the last two years since the financial crisis began.
What has so far been swept under the rug is the fact that our own federal reserve is buying a large portion of this debt back.
It is a nice game of cat and mouse that has not been reported by the popular media.
Imagine if you could do the same with your own personal finances, they would probably lock you up in jail for fraud! The Federal reserve is doing this in order to keep interest rates from rising.
While this is a admirable position to take.
The manner to which they are keeping interest rates low is just a ticking time bomb.
Sooner or later the interest rates will rise and when they do, look out! I believe it is very possible we may return to the hyper inflation of the 1980's.
I truly hope that I am wrong on this point.
High inflation will have a very stagnating effect on the economy as a whole.
Companies will not borrow to expand and thus another leg down for the economy is very possible.
Another effect of the government buying its own debt is the implications on the dollar.
What the federal reserve has essentially done is to print more money.
Trillions of it.
Well if there are more dollars floating around, each singular one becomes worth less.
The price of gold is already reflecting this by making new highs above $1000 on a regular basis.
The price if crude oil will also rise since our dollar is worth less.
So far there has been cooperation of the current dollar policy by foreign central banks in China and the Middle East.
The question will become whether they will continue to support this policy down the road.
At the current time, foreign buyers purchase a large portion of our debt.
In the neighborhood of 40-50%.
If they decide to change their bond purchasing policy, it will have a deleterious effect on interest rates.
What has so far been swept under the rug is the fact that our own federal reserve is buying a large portion of this debt back.
It is a nice game of cat and mouse that has not been reported by the popular media.
Imagine if you could do the same with your own personal finances, they would probably lock you up in jail for fraud! The Federal reserve is doing this in order to keep interest rates from rising.
While this is a admirable position to take.
The manner to which they are keeping interest rates low is just a ticking time bomb.
Sooner or later the interest rates will rise and when they do, look out! I believe it is very possible we may return to the hyper inflation of the 1980's.
I truly hope that I am wrong on this point.
High inflation will have a very stagnating effect on the economy as a whole.
Companies will not borrow to expand and thus another leg down for the economy is very possible.
Another effect of the government buying its own debt is the implications on the dollar.
What the federal reserve has essentially done is to print more money.
Trillions of it.
Well if there are more dollars floating around, each singular one becomes worth less.
The price of gold is already reflecting this by making new highs above $1000 on a regular basis.
The price if crude oil will also rise since our dollar is worth less.
So far there has been cooperation of the current dollar policy by foreign central banks in China and the Middle East.
The question will become whether they will continue to support this policy down the road.
At the current time, foreign buyers purchase a large portion of our debt.
In the neighborhood of 40-50%.
If they decide to change their bond purchasing policy, it will have a deleterious effect on interest rates.
Source...