US adds 13% more US dollars to the world supply.

[Rainbow Moonlight]

http://www.businessday.com.au/business/ ... -93bl.html
Is this a good idea?

[Jovial Monk]

I am no economist so not going to say if good or bad. The economic authorities in the US are deathly afraid deflation will stalk their ruined economy.

As prices drop, people stop buying because next day the purchase will be cheaper. There are already problems with their housing market, if house prices start deflating who is going to buy one?

Do a Google on deflation.

[Postul8]

It's a sign of increasing desperation among the Obama administration. Interest rates cannot be lowered any further.....well, they could, but twenty-five basis points isn't going to thrill anyone. China won't buy any more Treasury Bonds because there's no return and huge risk in it, so the US treasury has to buy it's own securities. That's what's called "printing money". The Treasury is putting numbers into it's own capital adequacy ratio, so that it can effectively spend more without creating more deficit in the budget. It's a self-cancelling means of creating debt & liquidity. This is how the Treasury will go about buying toxic debt, which I understand the administration is drawing closer & closer to realising has to be done.

"printing money" has the offset of creating inflation because effectively, the cost of that money and what it buys grows internally. Treasury can't charge itself interest and "printed money" is economically more expensive than borrowed money. Unless this action generates growth in the US economy within two quarters, stagflation will set in.

[Rainbow Moonlight]

My husband says there is a risk of hyperinflation- cost of food etc rising too high. He isn't an economist either, and he watches Fox a lot. What do you think about hyperinflation Postul?

[Jovial Monk]

No risk at all in near future. US desperately wants to accelerate inflation.

[Postul8]

My husband says there is a risk of hyperinflation- cost of food etc rising too high. He isn't an economist either, and he watches Fox a lot. What do you think about hyperinflation Postul?

In the US? hmmm......possible, but given even the Chinese still regard the US as the lynch-pin of capitalism, I think it's doubtful their economy will be allowed to fail by the Chinese at least. The difficulty for the US being they can't borrow any more from China because there's (a) no return in it for China; and (b) China needs all of her massive surpluses to ensure her own recovery. "Printing money" can work, but the decision as to what to spend on has to be right. Unless Obama's administration bites the bullet and buys up toxic debt, thereby injecting liquidity into the financial system, and does it soon, then the inflation beastie will outpace any growth generated.

It might turn out that China, SE Asia and India recover first, which will be good for us. They'll be wanting what we dig up. It may well transpire that the US economy is the last to clamber back up the slippery slope.

[Rainbow Moonlight]

Yeah- saw a report the other day of good news in china and India. Forget the details unfortunately.

[Jovial Monk]

Frogen says that Obama should buy up the banks, get rid off the debt and flog the banks back to private enterprise some time later. Apparently Reagan did this in the Savings & Loan collapse.

Dunno, scale of the crisis and the desperate state of the US economy probably mean the crisis will last some time in the US.

[Postul8]

Frogen says that Obama should buy up the banks, get rid off the debt and flog the banks back to private enterprise some time later. Apparently Reagan did this in the Savings & Loan collapse.

Dunno, scale of the crisis and the desperate state of the US economy probably mean the crisis will last some time in the US.

My gob is smacked! Frogen has some understanding of economics? He probably read it somewhere & simply parroted, but good on him for reading anyway, I say

[Rainbow Moonlight]

Frogen always did have a good grasp on economics.