

Fed, worried about recovery, will buy US debt - startuprules
http://finance.yahoo.com/news/Fed-worried-about-recovery-apf-2353655020.html?x=0

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ww520
Does this mean the foreigners have lost faith in the US government and stop
buying the US debt? The Fed buying US debt is like the left hand buying from
the right hand.

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mechanical_fish
No, I believe it has almost nothing to do with foreign investment.
(Incidentally, foreigners have _awesome_ faith in the US government, as
evidenced by the fact that interest rates are as low as they have ever been,
and -- frighteningly -- perhaps as low as they can be.)

No, the government buying its own debt is a very famous accounting trick
designed to create more money in the economy. This act is the basis of the
fractional reserve system, which in turn is the basis of all modern money.

The Federal Reserve bank buys bonds from bondholders (either newly issued
bonds from the government or bonds from my safe deposit box). And in return it
puts money in a bank account. Where does the money come from? It is just
numbers in a database. The Fed just edits the database. Only the central
government, which controls the currency, has the power to create money out of
thin air in this way, but that power is very important.

(In other times, when the economy is really hot and inflation is soaring and
we need to cool down, the Fed does the opposite: It raises interest rates,
which causes people to want to buy bonds to get more interest, which causes
people to spend their cash for those bonds. And, as each bond is bought, the
Fed just erases the cash from bank accounts. The money vanishes! Remember,
money is just a score in a game, the game of "keeping the economy working so
that people can eat". It's not made of metal or anything. That was the old
way, the way that didn't work.)

You can't get the same effect by selling bonds to England, because then
England will pay for the bonds in dollars, and England can't create dollars.
They have to buy dollars with pounds. So the total supply of dollars in the
world would remain constant, which is not the point of this exercise.

(Now if I really understood econ we could go on to talk about why this little
exercise might not work this time, about the "liquidity trap" and the "zero
lower bound". But my time is up.)

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yummyfajitas
_(Incidentally, foreigners have awesome faith in the US government,..._

This could also reflect a lack of faith in other governments rather than faith
in the US government. If assorted European debt became 10x more risky but US
debt only became 5x more risky, that would cause a flight into US debt.

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jeromec
Exactly correct. The U.S. can have economic problems, but as long we are still
at the top, we remain at the top.

 _One of the more interesting reactions to the FOMC’s gloomy appraisal of the
economic state of affairs is the surge of strength into the dollar and the
corresponding tumble in the euro. The U.S. dollar index — which is heavily
weighted to the euro — is up 1.8%. The euro is down against the buck to the
tune of 2.1%, a giant move in the forex markets._

[http://blogs.wsj.com/marketbeat/2010/08/11/oh-man-not-
europe...](http://blogs.wsj.com/marketbeat/2010/08/11/oh-man-not-europe-
again/)

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startuprules
"but as long we are still at the top, we remain at the top."

Said the captain of the titanic.

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jeromec
Don't get me wrong. I'm the last person to suggest we're unsinkable. I'm only
pointing out that our troubles become the troubles of everyone else, just as
our success has influenced global economic success.

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mortenjorck
Does this give the Fed more influence over treasury note yields? If it were to
start buying in higher volume, I would think so.

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stretchwithme
i suppose it makes more sense to print money and lend it to itself than
lending it to banks to lend to itself

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startuprules
Why waste all that paper/electronic bits? Just enact a large tax
increase...it's the same thing. Oh, but then the American sheeples will
notice.

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startuprules
massive printing of dollars, here we go!

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gte910h
Cause that's really dangerous when you're suffering deflation....you know,
when you take actions to correct this situation.

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startuprules
dangerous only for the banks.

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stretchwithme
oh, no, we're paying less for things. help!

the massive housing bubble and it inflationary effects HAD to collapse. those
who waited out the insanity deserve lower prices. those who were foolish do
not deserve to have the rest of us prop up their property values, although our
government is foolishly backing every bad bet out there.

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itsgoats
I'd like to say thank you, stretchwithme, for all of us who saved enough to
buy a house, responsibly, in what just happened to be the middle of last
decade and now have cause to sell (moving jobs because the economy stinks). We
so deserve to seriously be screwed over because of our timing. Thank you US
government. Thank you stretchwithme, your sentiments help the situation
tremendously.

Surprisingly, there were actually many people who bought a house in 2003-2005
because they had a down payment at that time and they had jobs and they bought
what they could afford.

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istari
You seem to think because you had a down payment, had a job, bought a house
you could afford, you "deserve" to be screwed over less by a falling housing
market, because you were "responsible".

Just the opposite! The migrant field worker who got a 0% down interest only
loan on a 500K house is far less "deserving" of the screw than you, because he
has no money to be screwed out of.

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stretchwithme
sorry, I didn't mean to be insensitive. you don't deserve this mess, but we
own the risks we take on. There's simply no other way to run a society.

When the dot com bubble burst and I lost a lot of paper profits, that was
unfortunate and unforeseen and I was responsible for the choices that got me
there. It would have been nice if someone sent me a check for my losses, but
how could the government do such a thing without making someone more
responsible pay for my mistakes?

And we don't deserve to have our government doing this to us, again and again,
but we own that until we make it clear that they should stop.

Its not China's responsibility or Saudi Arabia's. It ours.

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startuprules
The US government is printing/robbing you of your savings. Don't believe it
for a second it will trickle down to you; the last batch of printing/bailout
went to banks and shareholders.

On a side note, man, there's alot of sheeples on this board. Do you all like
get up early in the morning to go to work and get robbed?

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dstein
It's the financial equivalent of eating your own poop.

