by Expatriot » Sat 06 Nov 2010, 21:58:11
$this->bbcode_second_pass_quote('Sixstrings', 'F')rom what I read on ZH, the Fed is ALREADY monetizing the entire federal budget deficit -- so is it even possible for us to have a bond crisis?
Your knowledge of economics is on par with your knowledge of Con Law.
Here's how it could play out.
Fed keeps printing money.
Fed keeps buying bonds.
Dollar keeps losing value.
Bond holders, other than Fed, stop buying U.S. Bonds.
Fed keeps printing money.
Bond holders, other than Fed, start heavily selling Bonds.
Fed keeps buying bonds.
Fed becomes only buyer of U.S. Treasury Bonds.
At this point, the concept of "U.S. Treasury Bonds" is obsolete, as the Fed can now simply add dollars to a U.S. Govt. bank account and skip the charade.
U.S. dollar is losing value faster than a pumpkin on the 1st of November.
Foreigners stop accepting U.S. Dollars.
Holders of dollar priced assets sell into other currencies.
Value of U.S. dollar heads toward zero.
Savers wiped out.
Loaners wiped out, except large banks, who will get a law passed to add inflation value to their loans.
U.S. citizens can't afford anything produced outside of the U.S..
Riots.
Something like that.
Of course it's possible that the Fed won't simply buy more bonds when foreigners start dumping - then you have a bond crisis that forces rates way up.
The simple fact of the matter is that the U.S. is like a person with a 420 credit score who is getting prime rate minus 3% on a personal loan this is 500 times his/her income simply because he owns the bank. Eventually, the game ends.