Fed buying more treasuries

[we_are_toast]

Can someone explain why the Fed buying treasuries is anti-inflationary?
Isn't this cranking up Ben's helicopter and adding to the money supply?

By Susanne Walker and Dakin Campbell
March 5 (Bloomberg) -- Treasuries rose on speculation the Federal Reserve may boost asset purchases after the Bank of England said it would buy debt and the European Central Bank said it was studying “non-standard measures” to fight the recession.


Yields on the 30-year bond fell the most in more than two weeks as the central bank comments rekindled expectations the Fed may revist the purchase of Treasuries. More than 600,000 Americans filed first-time claims for jobless benefits.


“Fear is subsiding on inflation, so that’s why the longer end is up more than the shorter end,” said Andrew Richman, who oversees $10 billion in fixed-income assets as a strategist in West Palm Beach, Florida, for SunTrust Bank’s personal-asset management division. “People are expecting buys from the government and there will be a lot of supply coming out. More of it will be sold on the front end of the curve.”


The 10-year note yield fell seven basis points, or 0.07 percentage point, to 2.90 percent at 10:15 a.m. in New York, according to BGCantor Market Data. The price of the 2.75 percent security due in February 2019 rose 19/32, or $5.94 per $1,000 face amount, to 98 22/32.


The 30-year bond yield fell 10 basis points, or 0.10 percentage point, to 3.57 percent.


Central Banks
Fed Chairman Ben S. Bernanke first talked about the option of buying Treasuries on Dec. 1. In response, yields on the 30- year bond fell as much as 25 basis points, or 0.25 percentage point, to 3.18 percent.

http://www.bloomberg.com/apps/news?p...Owk&refer=home

[gwynedd1]

Re: Fed buying more treasuries

Can someone explain why the Fed buying treasuries is anti-inflationary?
Isn't this cranking up Ben's helicopter and adding to the money supply?

http://www.bloomberg.com/apps/news?p...Owk&refer=home

Hi we_are_toast,

It is inflationary. When the money factory buys bonds that all it ever is. In reality inflation is what we actually need but not through the Fed. The way to inflate correctly is to cut taxes and run deficits and even give tax credit to spend. Once the economy starts up again they should introduce energy taxes which would be real investment and create a stable market for alt energy and stop real inflation. That would put money in the goods and services economy. The Fed just pumps out credit.
In general when a medium of exchange is no longer a perishable commodity like most other things we buy and sell it becomes a super commodity that will be hoarded. That is what the gold standard bugs don't get. The best strategy during deflation is to starve real productive capital into submission and destruction. Thats sounds nice....for the lone monopolist that emerges from the wreckage.

Money is artificially safe from degradation since it lasts forever while all other capital naturally degrades. We want some inflation. That was the idea behind Worgl stamp script. Hoarding mediums of exchange is often confused with saving. If there is no output from it , its not.

[Starving Steve]

Re: Fed buying more treasuries

So long as money borrowed by the U.S. government is re-deposited into the Fed or the U.S. Treasury to earn interest, there can be no inflation, at least not initially.

The Obama Administration is borrowing >$600 billion for their universal healthcare plan. This borrowed money is being re-deposited into the U.S. Treasury to earn interest. So, the money is not being placed into circulation, and there can be no inflation, at least not initially.

Money in circulation right now in the U.S. is remarkably TIGHT. There will be no inflation, at least not initially.

Hopefully, the Obama Administration will raise taxes to cover the deficits when the funds on deposit with the U.S. Treasury or the Fed are released into circulation. The taxes would keep money tight.

Taxes are a good thing because taxes deflate the economy. This is where the supply-siders (Arthur Laffer and his Republicans) are totally wrong: Taxes are a GOOD thing, not a bad thing, and by not paying taxes and running deficits (supply-side economic policy ) in order to grow the economy, the U.S. went bankrupt.

[jtabeb]

Re: Fed buying more treasuries

In general when a medium of exchange is no longer a perishable commodity like most other things we buy and sell it becomes a super commodity that will be hoarded. That is what the gold standard bugs don't get. The best strategy during deflation is to starve real productive capital into submission and destruction. Thats sounds nice....for the lone monopolist that emerges from the wreckage.


Hoarding mediums of exchange is often confused with saving. If there is no output from it , its not.

Do you honestly believe that people that own gold intend to hoard it for the duration of their lifetimes? Do you think that they do not wish to put productive capital to use? Did it every occur to you that they may have a time preference that does not agree with when the governement wants them to spend and thus consume capital for what ever reason? If you think any of these things then you don't know about gold bugs. Yes there is the EOW crowd in the gold bug comunity, but that is a small minority.

Your argument above would fall on it's face if I could provide ONLY one counter-example, so here goes (above agrument falling flat on it's face time).

We were on a GOLD STANDARD (real gold was money, not the dollar cum FRN gold standard) in the truest sense since the founding of this country utill the creation of the FED. Got that? Notice how what you alledge would occur DID NOT OCCUR DURING the entire operating history of gold as money in the United States. Why? Because people realized the road to wealth was to acuire the means of production and that takes savings which GOLD is and was. We circumvent the process of savings today by MANDATING a time preferance when people must use their money (due to inflation).

This is the real problem in the US. People are forced to spend on non-productive items (consumerism) jsut to protect themselves from the ravages of inflation (even better to use credit to purchase something in ever depriciating dollars, right?). So Credit that goes to securing the means of production is NOT EARNED, therefore UNJUST, therefore, cronies, friends of friends, etc. benfit from the first instantation of credit money WHILE ALL ELSE PAY THE PENALTY DUE TO INFLATION, and are therefore UNABLE TO SECURE THE MEANS OF PRODUCTION FOR THEMSELVES.

THAT is what is wrong with our fiat credit system, and this is DEMONSTRABLY the case, not your fallacious (and proovably incorrect) supposition that gold as money would only lead to "hoarding".

Did we not have the industrial revolution at a time when gold was money (I mean real gold and silver coinage). Give the productive transformation that this change represented (with gold and silver vs fiat as the monetary medium of exchange), I can only conclude that your suppostion is utterly and completely FALSE.

[blazespinnaker]

Re: Fed buying more treasuries

Can someone explain why the Fed buying treasuries is anti-inflationary?
Isn't this cranking up Ben's helicopter and adding to the money supply?

http://www.bloomberg.com/apps/news?p...Owk&refer=home

The article is saying that fear is subsiding about inflation. This causes the long bonds to increase in price / decrease in yield as people are willing to pay more for them.

I don't think the article is saying that fed buying is going to cause disinflation/deflation.

[gwynedd1]

Re: Fed buying more treasuries

So long as money borrowed by the U.S. government is re-deposited into the Fed or the U.S. Treasury to earn interest, there can be no inflation, at least not initially.

The Obama Administration is borrowing >$600 billion for their universal healthcare plan. This borrowed money is being re-deposited into the U.S. Treasury to earn interest. So, the money is not being placed into circulation, and there can be no inflation, at least not initially.

Money in circulation right now in the U.S. is remarkably TIGHT. There will be no inflation, at least not initially.

Hopefully, the Obama Administration will raise taxes to cover the deficits when the funds on deposit with the U.S. Treasury or the Fed are released into circulation. The taxes would keep money tight.

Taxes are a good thing because taxes deflate the economy. This is where the supply-siders (Arthur Laffer and his Republicans) are totally wrong: Taxes are a GOOD thing, not a bad thing, and by not paying taxes and running deficits (supply-side economic policy ) in order to grow the economy, the U.S. went bankrupt.

Hi Starving Steve,


This situation has nothing to do with supply or demand side economics which are both farcical. Economics is about transactions not working from one side on an equation or another. Its like a model that shows the benefits of paying yourself without looking at the debit or credit side of things. Real economics focuses on buyer seller communication and a particular cohort. The flaw in supply side is if the capital remains in its similar concentrations. Only when capital must compete does labor have much of a stake in it. Same with demand side because monopoly capital can just raise prices to suck up the surplus. You either have free markets, equitable controlled markets or exploitation. The former is ideal, the middle is what we are and the latter is what we have done to the third world and is coming home.

The actual system is inherently usurious, unstable and corrupt on all counts. However even this tends to have its environmental factors. The only way fractional reserve lending could ever work is if the lending went into some form of productive output like fixed capital because as a means of production it may produce enough wealth to pay the endlessly accumulating interest. Apply it to the consumer economy is an absolute disaster making a bad system into one of utter folly.


Raising taxes will just increase the deflationary spiral. Tight money will result in capital deterioration. We need money to circulate in the goods and service economy and lowing taxes puts it there directly. When there is little relative debt to existing economic assets then putting money into the federal reserve system is inflationary and usurious but will create money and liquidity. However there is nothing left to finance and for those that do have something to finance they are unwilling to do so. So this will only result in large transfers of capital from one hand to another since the medium of exchange constriction will remain in place and monetary black mail will continue.

Its pretty simple really. Interests rates put money in and out of the economy. Taxes put money in and out of the economy. Low interest rates put bank credit at interest into the economy and into the FIRE economy. Low taxes allows more existing money supply to circulate at a lower relative rate of interest to the FIRE economy.

If the rest of the world didn't crash with us we would have been tuned up for some nasty carry trade with interest rates like this. All of our capital would go off shore. We need lower taxes and high interest rates.

[gwynedd1]

Re: Fed buying more treasuries

Do you honestly believe that people that own gold intend to hoard it for the duration of their lifetimes? Do you think that they do not wish to put productive capital to use? Did it every occur to you that they may have a time preference that does not agree with when the governement wants them to spend and thus consume capital for what ever reason? If you think any of these things then you don't know about gold bugs. Yes there is the EOW crowd in the gold bug comunity, but that is a small minority.

Greetings jtabeb,

What does that have to do with a game of chicken between a shiny imperishable metal and say actual chicken? What I mean by gold bug is gold standard bug in this context. However gold will be hoarded at some point thus its a horrible medium of exchange. I hold gold but in no way do I want a gold standard. Gold isn't capital either. It produces nothing. Capital is measured in gold. Gold + capital = capital or gold not both. People with precious metals(like me) are just trying not to lose the game of chicken. I don't want to be declared the winner and end up like a Caribbean native who didn't know why the Spanish wanted that shinny stuff so much.

Your argument above would fall on it's face if I could provide ONLY one counter-example, so here goes (above agrument falling flat on it's face time).

We were on a GOLD STANDARD (real gold was money, not the dollar cum FRN gold standard) in the truest sense since the founding of this country utill the creation of the FED. Got that? Notice how what you alledge would occur DID NOT OCCUR DURING the entire operating history of gold as money in the United States. Why? Because people realized the road to wealth was to acuire the means of production and that takes savings which GOLD is and was. We circumvent the process of savings today by MANDATING a time preferance when people must use their money (due to inflation).

When were we on a gold standard 1870 to WWI and the 1930s. Just paradise. And when we shifted in that direction with silver demonetization and bond for greenback it caused the long depression which caused monetary hoarding. Thats its track record. Its miserable. The gold standard and hoarding also pounded us again in the Great depression.

The reign of the full gold standard was short, lasting only from the 1870s to the outbreak of World War I. That war saw recourse to inconvertible paper money or to restrictions on gold export in nearly every country. By 1928, however, the gold standard had been virtually reestablished, although, because of the relative scarcity of gold, most nations adopted a gold-exchange standard, in which they supplemented their central-bank gold reserves with currencies (U.S. dollars and British pounds) that were convertible into gold at a stable rate of exchange. The gold-exchange standard collapsed again during the Great Depression of the 1930s, however, and by 1937 not a single country remained on the full gold standard.
-Britannica

In fact, the current economic woes look a lot like what my 96-year-old grandmother still calls "the real Great Depression." She pinched pennies in the 1930s, but she says that times were not nearly so bad as the depression her grandparents went through. That crash came in 1873 and lasted more than four years. It looks much more like our current crisis.
...

The problems had emerged around 1870, starting in Europe. In the Austro-Hungarian Empire, formed in 1867, in the states unified by Prussia into the German empire, and in France, the emperors supported a flowering of new lending institutions that issued mortgages for municipal and residential construction, especially in the capitals of Vienna, Berlin, and Paris. Mortgages were easier to obtain than before, and a building boom commenced. Land values seemed to climb and climb; borrowers ravenously assumed more and more credit, using unbuilt or half-built houses as collateral. The most marvelous spots for sightseers in the three cities today are the magisterial buildings erected in the so-called founder period.

http://chronicle.com/temp/reprint.ph...h07p4hy9z83x18

This is the real problem in the US. People are forced to spend on non-productive items (consumerism) jsut to protect themselves from the ravages of inflation (even better to use credit to purchase something in ever depriciating dollars, right?). So Credit that goes to securing the means of production is NOT EARNED, therefore UNJUST, therefore, cronies, friends of friends, etc. benfit from the first instantation of credit money WHILE ALL ELSE PAY THE PENALTY DUE TO INFLATION, and are therefore UNABLE TO SECURE THE MEANS OF PRODUCTION FOR THEMSELVES.

People buy consumer items to protect themselves from the ravages of inflation. :confused: What? Also if new money or credit is introduced to create production its not inflationary. I don't understand any of what you said.

THAT is what is wrong with our fiat credit system, and this is DEMONSTRABLY the case, not your fallacious (and proovably incorrect) supposition that gold as money would only lead to "hoarding".

As we see it did several times lead to hoarding Now since the dollar and Yen are rising in value its being hoarded. I don't even need historical references.

Did we not have the industrial revolution at a time when gold was money (I mean real gold and silver coinage). Give the productive transformation that this change represented (with gold and silver vs fiat as the monetary medium of exchange), I can only conclude that your suppostion is utterly and completely FALSE.

Post hoc ergo propter hoc. When were microchips invented?



And what suppositions?

John Sherman(future gold bug) who was once honest and then opposed this measure, predicted the results in a speech made in 1869, as follows :

It is not possible to take this voyage without the sorest distress. To every person except a capitalist out of debt, or a salaried officer, or annuitant, it is a period of loss, danger, lassitude of trade, fall of wages, suspension of enterprise, bankruptcy, and disaster. * * It means the ruin of all dealers whose debts are twice their business capital, though one-third less than their actual property. It means the fall of all agricultural productions without any great reduction of taxes. When that day comes, every man, as the sailor says, will be close reefed, all enterprise will be suspended, every bank will have contracted its currency to the lowest limit ; and the debtor, compelled to meet in coin a debt contracted in currency, will find the coin hoarded in the treasury, no representative of coin in circulation, his property shrunk not only to the extent of the appreciation of the currency, but still more by the artificial scarcity made by the holders of gold. To attempt this task by a surprise upon our people by arresting them in the midst of their lawful business and applying a new standard of value to their property, without any reduction of their debts, or giving them an opportunity to compound with their creditors, or to distribute the losses, would be an act of folly without an example in evil in modern times.

The prediction came true.

[blazespinnaker]

Re: Fed buying more treasuries

Hi we_are_toast,

It is inflationary. When the money factory buys bonds that all it ever is. In reality inflation is what we actually need but not through the Fed. The way to inflate correctly is to cut taxes and run deficits and even give tax credit to spend. Once the economy starts up again they should introduce energy taxes which would be real investment and create a stable market for alt energy and stop real inflation. That would put money in the goods and services economy. The Fed just pumps out credit.
In general when a medium of exchange is no longer a perishable commodity like most other things we buy and sell it becomes a super commodity that will be hoarded. That is what the gold standard bugs don't get. The best strategy during deflation is to starve real productive capital into submission and destruction. Thats sounds nice....for the lone monopolist that emerges from the wreckage.

Money is artificially safe from degradation since it lasts forever while all other capital naturally degrades. We want some inflation. That was the idea behind Worgl stamp script. Hoarding mediums of exchange is often confused with saving. If there is no output from it , its not.

Tax credits do not work when the market is spiraling downwards in hysteria. People just save the money (have you seen the rapidly rising savings rate, hmm?)

No, the right thing to do is to hire people with publics works projects. The problem with these projects is that sometimes they're hyper stupid and a complete waste of effort.

They don't make food or energy or teach people to make food or energy. Or cure people's diseases.

Obama's plan is to do that - make energy, teach people, and cure diseases. It's the right plan for the right time. However, once unemployment moves low again, we really need to start laying off government employees. Obama needs to be stressing that right now .. I think it's a big mistake that he isn't, because capital is getting nervous about the US and the hard left that it's taking. Capital doesn't like leftist policies. Not to mention that the US set the bar for capital friendly policies, which is freaking it out even more because the bar is falling.

As for inflation, it is OK, but hyper inflation is not. If inflation gets out of control, that would be cataclysmic. We'd have to go back to onerous interest rates to push it back down otherwise we risk completely losing control of society. High interest rates are very very painful and would reduce economic activity significantly as it becomes very expensive to borrow.

The key is to keep inflation between a narrow band of 1.5 - 2.5%. It's a kind of ante. Everyone has to pay it to be in the poker game of life. Otherwise, nobody gambles, and nothing ever gets done.

[jtabeb]

Re: Fed buying more treasuries

Greetings jtabeb,

What does that have to do with a game of chicken between a shiny imperishable metal and say actual chicken? What I mean by gold bug is gold standard bug in this context. However gold will be hoarded at some point thus its a horrible medium of exchange. I hold gold but in no way do I want a gold standard. Gold isn't capital either. It produces nothing. Capital is measured in gold. Gold + capital = capital or gold not both. People with precious metals(like me) are just trying not to lose the game of chicken. I don't want to be declared the winner and end up like a Caribbean native who didn't know why the Spanish wanted that shinny stuff so much.


When were we on a gold standard 1870 to WWI and the 1930s. Just paradise. And when we shifted in that direction with silver demonetization and bond for greenback it caused the long depression which caused monetary hoarding. Thats its track record. Its miserable. The gold standard and hoarding also pounded us again in the Great depression.

The reign of the full gold standard was short, lasting only from the 1870s to the outbreak of World War I. That war saw recourse to inconvertible paper money or to restrictions on gold export in nearly every country. By 1928, however, the gold standard had been virtually reestablished, although, because of the relative scarcity of gold, most nations adopted a gold-exchange standard, in which they supplemented their central-bank gold reserves with currencies (U.S. dollars and British pounds) that were convertible into gold at a stable rate of exchange. The gold-exchange standard collapsed again during the Great Depression of the 1930s, however, and by 1937 not a single country remained on the full gold standard.
-Britannica

In fact, the current economic woes look a lot like what my 96-year-old grandmother still calls "the real Great Depression." She pinched pennies in the 1930s, but she says that times were not nearly so bad as the depression her grandparents went through. That crash came in 1873 and lasted more than four years. It looks much more like our current crisis.
...

The problems had emerged around 1870, starting in Europe. In the Austro-Hungarian Empire, formed in 1867, in the states unified by Prussia into the German empire, and in France, the emperors supported a flowering of new lending institutions that issued mortgages for municipal and residential construction, especially in the capitals of Vienna, Berlin, and Paris. Mortgages were easier to obtain than before, and a building boom commenced. Land values seemed to climb and climb; borrowers ravenously assumed more and more credit, using unbuilt or half-built houses as collateral. The most marvelous spots for sightseers in the three cities today are the magisterial buildings erected in the so-called founder period.

http://chronicle.com/temp/reprint.ph...h07p4hy9z83x18

People buy consumer items to protect themselves from the ravages of inflation. :confused: What? Also if new money or credit is introduced to create production its not inflationary. I don't understand any of what you said.


As we see it did several times lead to hoarding Now since the dollar and Yen are rising in value its being hoarded. I don't even need historical references.

Post hoc ergo propter hoc.

When were microchips invented? -> Ignoratio elenchi



And what suppositions?

John Sherman(future gold bug) who was once honest and then opposed this measure, predicted the results in a speech made in 1869, as follows :

It is not possible to take this voyage without the sorest distress. To every person except a capitalist out of debt, or a salaried officer, or annuitant, it is a period of loss, danger, lassitude of trade, fall of wages, suspension of enterprise, bankruptcy, and disaster. * * It means the ruin of all dealers whose debts are twice their business capital, though one-third less than their actual property. It means the fall of all agricultural productions without any great reduction of taxes. When that day comes, every man, as the sailor says, will be close reefed, all enterprise will be suspended, every bank will have contracted its currency to the lowest limit ; and the debtor, compelled to meet in coin a debt contracted in currency, will find the coin hoarded in the treasury, no representative of coin in circulation, his property shrunk not only to the extent of the appreciation of the currency, but still more by the artificial scarcity made by the holders of gold. To attempt this task by a surprise upon our people by arresting them in the midst of their lawful business and applying a new standard of value to their property, without any reduction of their debts, or giving them an opportunity to compound with their creditors, or to distribute the losses, would be an act of folly without an example in evil in modern times.

The prediction came true.

I was going to point out all of the logical fallacies contained in the above, but that would really take ALOT of time. So here is a link to wikipedia instead.

(I did make 1 comment, because it was just too glaring)

BTW Esp read up on negation or counter example.
"If no apples are red, then there are no red apples."
proving the existance of 1 red apple would disprove the above premise.

" I found a red apple, therefore there is at least on apple that is RED" vs "there are no red apples"

http://en.wikipedia.org/wiki/List_of_fallacies

[nathanhulick]

Re: Fed buying more treasuries

I have to comment here.

Jtabeb is spot on. gwynedd1 is confusing money and currency.

Money is something that inherently develops in any economic system. Government attempt to monopolize money so they can profit from it. This is the entire purpose of the existence of currency and legal tender laws.

I hold money (gold) because I currently earn more than I feel that I need to spend personally, and I want to have some money in case of an emergency, or an event that makes it impossible for me to earn as much as I need to spend.

I am not "hoarding" anything, I am simply doing more work than necessary now, and using the gold as a receipt for that work, that I will cash in later on when I plan on doing less work. I would be perfectly happy to hold currency (US dollars) instead of gold, except that our government, which has by fiat deemed that these dollars are legal tender, is debasing this currency. I know that in the future, if I am holding dollars, I will end up able to purchase less of anyone else's work, than if I hold gold.

Gold is a great medium of exchange, and store of value. If governments would just repeal legal tender laws and fractional reserve banking, gold would almost definitely become the default medium of exchange.

[kartius919]

Re: Fed buying more treasuries

The US gov't does not issue credit, it issues debt. It gave up that power to the scum sucking bankers who own the federal reserve.

[gwynedd1]

Re: Fed buying more treasuries

I have to comment here.

Jtabeb is spot on. gwynedd1 is confusing money and currency.

Money is something that inherently develops in any economic system. Government attempt to monopolize money so they can profit from it. This is the entire purpose of the existence of currency and legal tender laws.

I hold money (gold) because I currently earn more than I feel that I need to spend personally, and I want to have some money in case of an emergency, or an event that makes it impossible for me to earn as much as I need to spend.

I am not "hoarding" anything, I am simply doing more work than necessary now, and using the gold as a receipt for that work, that I will cash in later on when I plan on doing less work. I would be perfectly happy to hold currency (US dollars) instead of gold, except that our government, which has by fiat deemed that these dollars are legal tender, is debasing this currency. I know that in the future, if I am holding dollars, I will end up able to purchase less of anyone else's work, than if I hold gold.

Gold is a great medium of exchange, and store of value. If governments would just repeal legal tender laws and fractional reserve banking, gold would almost definitely become the default medium of exchange.

Hi nathanhulick,

Gold is a great store of value and lousy medium of exchange. It is subject to hoarding and wins every capital game of chicken. It has been done in the past as I pointed out several time but all I got was an irrelevant wikipedia link . Gold has almost no historical record at all as a medium of exchange for day to day operations. One may as well compare it to plutonium when used as a medium of exchange for typical transactions. Rome used copper and Europe used silver. Its is so scarce it can be monopolized, has been and will be again if used as a standard.

[jtabeb]

Re: Fed buying more treasuries

Hi nathanhulick,

Gold is a great store of value and lousy medium of exchange. It is subject to hoarding and wins every capital game of chicken. It has been done in the past as I pointed out several time but all I got was an irrelevant wikipedia link . Gold has almost no historical record at all as a medium of exchange for day to day operations. One may as well compare it to plutonium when used as a medium of exchange for typical transactions. Rome used copper and Europe used silver. Its is so scarce it can be monopolized, has been and will be again if used as a standard.

Would you care to show an example of hoarding gold coinage when the monetary unit was NOT being debased due to clipped coins or reduce purity please.

(you will be hard pressed to find on as DEBASEMENT of money is the ONLY cause of gold hoarding)

True in Wiemar, true today. ;)

[gwynedd1]

Re: Fed buying more treasuries

Tax credits do not work when the market is spiraling downwards in hysteria. People just save the money (have you seen the rapidly rising savings rate, hmm?)

No, the right thing to do is to hire people with publics works projects. The problem with these projects is that sometimes they're hyper stupid and a complete waste of effort.

Hi blazespinnaker,

I am fine with that. Some of that window is closed. However if you gave me 5k to buy a car I probably would. However you are right their are some works we could use. Its a bit odd though how some people think building arms like battleships and tanks can get us out of a depression but making cars and washing machines is just plan nuts.

They don't make food or energy or teach people to make food or energy. Or cure people's diseases.

Obama's plan is to do that - make energy, teach people, and cure diseases. It's the right plan for the right time.

Why not just make fuel into a reverse subsidy? Tax it but make a tax rebate out of it and just kick it right back. Then there is a market instead of someone deciding which technology should win. Government is great at keeping people from doing something stupid like running a stop sign. Selection for genius is not so good. We should tax stupidity(gas guzzling) and create a market for the best alt energy and keep gas at $5 a gallon while keeping buying power.

However, once unemployment moves low again, we really need to start laying off government employees. Obama needs to be stressing that right now .. I think it's a big mistake that he isn't, because capital is getting nervous about the US and the hard left that it's taking. Capital doesn't like leftist policies. Not to mention that the US set the bar for capital friendly policies, which is freaking it out even more because the bar is falling.

Consider how thats going to blow back. Stressing temporary work does not make me want to spend. These formerly unemployed people with depleted savings will try to rebuild them and when they hear temp that will not have a good effect. Also I wouldn't even believe him and I can afford to unlike those who actually work those jobs. We should simply spend money where it makes sense.

As for inflation, it is OK, but hyper inflation is not. If inflation gets out of control, that would be cataclysmic. We'd have to go back to onerous interest rates to push it back down otherwise we risk completely losing control of society. High interest rates are very very painful and would reduce economic activity significantly as it becomes very expensive to borrow.

I seriously can't think of one central bank created hyperinflation. I have seen banks create money to try and buy things that aren't there. If you toss out your agricultural class in civil war, have a massive imposed indemnity, bombed out cities then yes I can see that. Devaluation is more likely. Usually by the time it gets to hyperinflation the cataclysm has already happened.

The key is to keep inflation between a narrow band of 1.5 - 2.5%. It's a kind of ante. Everyone has to pay it to be in the poker game of life. Otherwise, nobody gambles, and nothing ever gets done.

Agreed.

[The Outback Oracle]

Re: Fed buying more treasuries

Inflation at any level causes an incorrect alignmnet of REAL after-tax interest rates and leads to a misallocation of resources...hence the FIRE economy. Inflation and a long-term determination to ignore its effects has brought us to where we are.
You don't need inflation to get investment. You need productive investments that are worth investing in!!!! You won't get them while you are fiddling around with inflation and negative after-tax interrest rates.

In addition Inflation is theft from the prudent and gifts to the reckless. It is morally reprehensible and the acceptance of such a morally corrupt regime is at the core of our problems.

There is no "good" level of inflation