Ok I think I agree if the Treasury is able to sell its notes to someone else (in this case BOJ), and we we have no trade deficit, then its just a trading of assets and liabilities on eathothers books. However I think the chink in the armor here is your assuming the BOJ’s money was not created into existence and also that treasuries sold on the open market can and are purchased by our Fed (money creation).
Tell me if I’m wrong here (as per my initial disclosure that I’m no expert on this)
There is also this non-traditional method which has been reportedly used recently…
The following is what the Electronic Money Printing Press is:
Japan experiences a demand for the yen which is not welcomed by the Bank of Japan.
In order to stave off an appreciation in the yen, the Bank of Japan needs to create yen in order to sell it to buyers who offer US dollars in return.
The Bank of Japan borrows yen in the same manner as the example below, whereby the US or any other nation can create money in their insular systems.
The difference here is there is no time for a natural creation of money via the many steps. The Bank of Japan needs dollars and they need them now.
The Bank of Japan enters the yen/dollar 24 hour market selling the borrowed yen, receiving dollars in return.
The bank of Japan is now drowning in US dollars, but only for a very short time.
The Bank of Japan electronically transmits dollar money wires to the Federal Reserve Bank of New York.
The Federal Reserve Bank of New York many times with a 24 hour day receives these wires and deposits them in the Japanese Float Account at that bank.
The Federal Reserve Bank of New York is the investment manager of the Japanese Float Account.
With the knowledge of the Bank of Japan, the Federal Reserve Bank of New York utilizes 100% of each bank wire as it arrives to enter into the international market for US Treasury instruments, buying US Treasury bonds all across the maturity curve from the shortest out to 30 years.
This fuels a bull market in the US Treasury market.
This bloats the US TIC report on inflows of capital into the US.
The New York Federal Reserve Bank, by buying the bonds for the Japanese Float Account at that bank in the open market, places dollars in the hands of worldwide sellers of Treasury instruments.
Because the international US Treasury market is a private market the increase in liquidity is huge, quiet and everywhere.
The reason this transaction cannot be unwound is because the method would be selling all those bonds that have been accumulated for the Japanese Float Account at the Federal Reserve Bank of New York into the open market. That is a practical impossibility as even the huge international market in US Treasury items cannot absorb such a supply.
This transaction is totally different in its manner and impact than subscribing to an issue of US Treasuries at auction on behalf of a non US buyer, which is customary.
This is the non-traditional method Professor Bernanke utilized that liquefied the world in a short period of time. This attempt to support an international economic recovery is now hitting home with its inflationary impact. This is beyond huge and happened over a short period of time compared to traditional methods. The results cannot be stopped because the liquidity cannot be drained. Regardless of the games played to break the psychology of inflation, real inflation will be delivered in an unprecedented proportion and non traditional manner.
