This has been my question. Everything the Fed is doing is screaming hyper-inflation down the road. BUT w/unemployment so high (I hear 20% in Detroit – surprised not more) and 10.5 in CA, I’m at a loss.
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Even with high unemployment, the Fed could probably force hyperinflation upon us if they go from being the LENDER of last resort to being the BUYER of last resort.
The Fed is already planning to buy outright $1.2 trillion in bad assets. This proposed public-private partnership thing looks like more of the same, except instead of the government providing the full 100% overpayment, the ‘private partners’ will have to put in 3% or so. This is ~32:1 leverage.
Probably what we’ll see is BofA putting up 3% to help the government overpay for Citi’s assets with Citi putting up 3% to help the government overpay for BofA’s assets.
So it looks to me like the government has decided that since it can’t force banks to lend or people to borrow, that it is just going to become the buyer of last resort in order to force hyperinflation upon us. They’ll do some of this through outright purchases and some of it through ridiculous schemes that are pitched as ‘loans’ but are really ostensibly purchases by the government due to the absurd leverage involved.
