[quote]The FED prints money and buys u.s. treasuries, keeping borrowing costs low for the Federal Government. [/quote]
Ok, let’s stop right here. The effect of the FED buying of US treasures has been analyzed and it is estimated to amount to a pittance, like 10 or 20 bps off of a 10-year yield.
The effect of government spending is larger, but the same spending would’ve gone on just fine without any money creation. People still regard the US 10-year as one of the safest and the most riskless investments in existence. The treasury would be able to sell those bonds at similar rates completely on its own.
[quote]All this money begins circulating in the world economy and ends up in the hands of more and more people who then consume more and more commodities.[/quote]
I don’t see these people. The average wage in the US certainly has not tripled in two years. The USD to RMB exchange rate did not, either.
The process you describe is certainly real, but its scale is not. It is the normal economic stimulation via GDP multiplier. So far it has shaved, optimistically, 4% off of U.S. unemployment (in other words, unemployment is 9%, but it would’ve been 13%). It does not really start creating inflationary pressures here in the U.S. until the economy gets closer to full employment.
[quote], and the ultimate truth detector does as well,[/quote]
Don’t you mean the ultimate bubble? Last I checked, it still cost less than $500/oz to get the yellow stuff out of the ground. Somehow the overall inflation and money printing do not seem to raise the real cost of gold.
