Let me tell you folks, this is slimy business. The government wants to spend money, but doesn't have any. It also doesn't won't or can't sell bonds to foreign investors. This is what they do:
While total fed credit was down a tiny $1.7 billion dollars last week, the Federal Reserve managed to buy up $1.3 billion dollars in U.S. securities. After seeing the numbers, let me tell you what actually goes on. The fed creates, out of thin air, some bonds. It then prints U.S. dollars and buys up those bonds. Just like magic, the government now has $1.3 billion more USDs to spend.
Like I said, this is nasty business that is very bearish for the USD. As U.S. bonds and treasuries become less and less appealing for foreign investors such as China and Japan, expect a lot more monetizing of debt.
The U.S. isn't going to get up and leave there military operations because China won't fund them anymore. Yes, they eventually will be forced to take that option unless they want to turn into Zimbabwe. I promise you, they're going to drive the car until the tank runs out of gas.
Thursday, March 15, 2007
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