If we hadn’t crossed it already, we certainly did so wednesday
On Wed the USA announced to the world that they would start directly monetizing their own debt – this is the most inflationary step that can be taken in any monetary system
Let’s simplify the scenario so we can all understand
Prior to wed, the US Treasury dept would create US Treasury bonds to sell on the open market – these pieces of paper were then sold to anyone who wanted them, primarily the Chinese for the last few years
In order to buy our bonds, the Chinese would print up yuan on their printer – this caused inflation IN CHINA because the only new currency created in this scenario was yuan (ie, we exported our inflation to China)
After wed, the US Treasury will print US Treasury bonds but the buyer of the bonds (at least $300 billion worth) will be the US Federal Reserve (which is neither federal nor has any reserves) – in this scenario we are creating US dollars to buy US bonds so the US money supply is immediately inflated by the amount of money printed
Here’s another way of looking at the new monetary arrangement: I have two printers in my basement – I’m going to print US dollars on one of the printers and US bonds on the other – once the ink has dried I’ll take the US bonds and place them in my vault as an asset and I’ll go spend the printed money as I see fit (in the media they are describing this process as the “Fed expanding their portfolio”)
Please explain to me how we can have any type of healthy economy based on the output from two printers
