Wednesday, April 1, 2009

ZimBen's Printing Press

"Wouldn't it be nice if you could just print money? The US Federal Reserve can. It has pumped roughly $800 billion of new money into the financial system over the past seven months, and last week said another trillion or more could be created in months ahead. ... The cash credits--known as bank reserves--have grown from $3 billion last August to $776 billion by mid-March. .... Some economists find the Fed's actions alarming, especially its purchases of government bonds. The Fed is essentially creating money and lending it to the Treasury. ... Officials hope the new money gets more credit into the economy and helps to revive the financial system. If all goes according to plan, Fed officials will pull the extra money during a recovery, pushing interest rates higher before inflation gets out of hand", my emphasis, Jon Hilsenrath (JH) at the WSJ, 21 March 2009.

Is JH serious? If the Fed contracts the monetary base the banking system will collapse. What plan is JH talking about? The one he dreamed about after consuming too many pints of Jack Daniels topped off with too many magic mushrooms?

4 comments:

Anonymous said...

Actually I wish the WSJ writers would drink a little more Jack and eat more mushrooms... they kinda ride the corporatist line a little too much...

Print money? I think ZimBen knows he will be retired before the bell tolls...

Anonymous said...

The Fed has to print money now as the US Treasury has to issue about 2.5T of new debt this year (as well as roll 2.5T of debt which comes due!).

Who can buy this amount?

Only the Fed who can print the money to purchase it.

And it's a dream that the Fed can pull it back -- someone else would have to step up and purchase the debt. Who?

Anon1 said...

Uhmmm Other/Anon asks...

"...someone else would have to step up and purchase the debt. Who?"

Just for fun what would happen if all money market/CD investors flipped to Treasuries?

What happens then?

Anonymous said...

Just for fun what would happen if all money market/CD investors flipped to Treasuries?

Who do they sell the CD's to?

Or do the CD issuers get funded by the Fed or US Treasury?

Not much difference...