Starting last September, the new lending programs — including money for bailouts of individual companies like Citigroup, American International Group and Bank of America — have caused the Fed to print new money at the fastest pace in history

The cool part is they are not printing money. These dollars are electronic transactions installed into a system without being deducted from elsewhere, such as the total tax revenues available line in Treasury reports.

Effectively, the U.S. is financing its own debt by purchasings its own debt notes, Treasuries, by simply filling in the ‘amount paid’ line with a number created out of thin air. Very like buying groceries without adding money to the cash register. Once the debt note is issued, I suppose the Treasury can actually talk itself into printing paper dollars to represent the ‘loan’

I had an argument with an economist (for a big three company) some years ago. He argued that we should simply cancel our national debt instead of trying to pay it. Effectively we are doing that. The elementary way to accomplish this would be to cancel currency outstanding and issue new currency but that is so ‘Weimar Republic’. Instead, we add a few decimal places to the total revenue line at Treasury and declare ourselves solvent which de facto cancels our currency by inflation.

Right now, they are betting correctly that inflation will not be rampant like Venezuala or Eastern Europe because those nations are in so much worse shape the American dollar is still a safe haven. That does not mean foreigners will buy our Treasuries. They must have slowed down for the agency to start buying it’s own notes, but it does mean many foreigners may still prefer to barter for U.S. dollars than their own totally dead paper

If we bought every toaster made in China, while GE would garner some profits, our own citizens would have received only toasters, and not paychecks, and be out the price of a toaster. The system is currently self depleting, minus the value of our assets, which still exceed Venezuala’s assets

I can understand printing dollars to end a credit crunch, but the Obama spending spree is exceeding the credit crunch and is directed to create gigantic perpetuating debt, not to pay off the old balances or fill the gap of deflated asset values.

China has to be gasping because as we buy our own Treasuries with mythical dollars their U.S. Treasuries are shrinking. I can feel the nuclear fallout already

entagor on March 19, 2009 at 3:21 AM