Debt Monetization: He's Heading for That Small Moon

I received numerous e-mails and comments in response to Friday’s piece, many of which were very reasonable critiques, all of which I appreciated. One basic question which was asked multiple times was why I make a distinction between what the Fed is currently doing (quantitative easing) and debt monetization. I’m going to try to answer this question below. As always, please feel free to comment and/or write me an e-mail if you have further questions. I welcome the debate. If however you start an e-mail with, “You idiot!” I am somewhat less likely to respond.

First, let’s frame the discussion. If one defines debt monetization as simply the creation of money for purpose of buying government debt, then there isn’t a distinction between the Fed’s quantitative easing program and debt monetization. In fact, by that simple definition, there is no difference between the Fed’s normal open market operations, which often involve doing repos with Treasury collateral, and debt monetization. But as a trader, I don’t give a dewback's tail what you call it. I care what the effect is. Clearly there is some distinction to be drawn between old-school open market operations, today’s quantitative easing program, and full scale debt monetization, at least in terms of degrees. So let’s agree that there is no utility in turning this into a discussion of semantics.

Is this a case of the argument of the beard? That is to say there is no difference between $1 of debt monetization and $1 trillion because you can’t pin down exactly where it stops being open market operations and when it becomes something else? No. We can draw a distinction, even if its somewhat subjective. And from this distinction we can create more objective signposts for when there is an evolution of the policy.

Consider what the definition of quantitative easing is. Its simply the process of printing a small moon-sized amount of new money (or creating bank reserves as its done in practice) and unleashing it on the economy. It is not necessarily the process of buying government debt with the proceeds of created bank reserves. The purchasing of government debt is merely a convenient, and potentially highly effective, means of getting that new money out into the economy.

The intent of quantitative easing is to create inflation. I know, shocking thought, right? But the reality is that sometimes the market-clearing rate of interest is actually below zero. That is that demand for savings is so great that it overwhelms demand for credit. This is the so-called liquidity trap. Real interest rates need to be negative, but nominal interest rates can never be negative. The Fed can only cut to zero. Thus we need more inflation. That would allow nominal rates to fall below the inflation rate, resulting in a negative real rate. Here is a good piece by Paul Krugman on the subject. It was written in 1998 to describe the problems in Japan, but its relevant for the U.S. today. I’ll pull out one section to save you the trouble:

If this… [liquidity trap]… bears any resemblance to the real problem facing Japan, the policy implications are radical. Structural reforms that raise the long-run growth rate (or relax non-price credit constraints) might alleviate the problem; so might deficit-financed government spending. But the simplest way out of the slump is to give the economy the inflationary expectations it needs. This means that the central bank must make a credible commitment to engage in what would in other contexts be regarded as irresponsible monetary policy - that is, convince the private sector that it will not reverse its current monetary expansion when prices begin to rise!

Ben Bernanke himself referenced this strategy back in 2002, before he was Fed chair. (By the way, a time when the deficit wasn't nearly the problem it is now). Currency, he explains, only has value because of its scarcity. If you need inflation (i.e., you need the currency’s value to decline), just make more money! "The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost."

So we can debate whether or not the U.S. is in such a dire predicament as to necessitate this radical monetary maneuver, but its clear to me that the Fed’s current programs are designed around the above thinking. We’re trying to fight deflation to prevent a Japanese-style disaster.

Debt monetization, on the other hand, has the intention of extinguishing government debt through creation of new money. That is, the government is alleviated from its debt burden by way of the printing press. Has this, in fact, occurred? Any honest person, no matter what your opinion on the situation, can only answer maybe. As I stand here now, this 12th day of October in the Year of our Lord Two Thousand and Nine, I don’t know what the Fed will eventually do with the Treasuries it has purchased. If they are held to maturity, I’d have to admit that the Fed did indeed participate in debt monetization. Maybe it was on a limited scale, but it was monetization none-the-less. I also don’t draw any distinction between Agency debt (Fannie Mae/Freddie Mac/Federal Home Loan Bank) and Treasury debt. Both are de facto debt of the tax-payers. I’ll make some distinction in regards to Agency MBS which isn't debt of the government, rather a guarantee by the government.

Whether you agree with me or not, there is my view on the current situation. What’s more interesting is what it all means for the markets. One commenter accused me of drawing a distinction without a difference. Very fair. I basically just said that I don’t know whether the Fed is going to monetize the debt or not. Does it actually matter which it is?

Let’s say, for the sake of argument, that the Fed ends its bond buying program by March 2010 without increasing the amount purchased, as they currently have pledged. I know the hard-core monetization believers believe they will need to keep the printing presses going in order to nominally service our debt. That’s not my view, and I don’t know if anything other than time will convince that group otherwise anyway. So I’m going to let that go for now.

I’m saying if they finish buying all they said they’d buy and do no more, they could either figure out some means of unloading their positions over time, or else hold to maturity, effectively monetizing that portion of the debt. Does it matter?

One way to think about this is just to consider the impact of printing money, regardless of what is done with the proceeds. Classically, we’d expect the impact to all be related to inflation: higher interest rates, weaker dollar, higher commodities prices, higher inflation.

The Fed announced its program to purchase Agency and Agency MBS on November 25, 2008. Here is where we were the day before the announcement.

• 10-year Treasury: 3.32%. We’re marginally higher now at 3.38%.
• 2-year Treasury: 1.21%. We’re marginally lower now at 0.97%.
• Dollar: The DXY was 86.081 on 11/24. Now 76.139. 11.55% lower.
• Commodities: The CRB was 243.80 on 11/24. Now 266.26, or 9.21% higher.
• CPI: The All Items Index stood at 216.889 in October 2008. Now its 0.67% lower at 215.428.

Mixed record. Really Treasury rates are basically unchanged and consumer prices are marginally lower. Not what you’d expect. Commodities and the dollar are reacting exactly as you’d expect.

Interesting to note that the Treasury program was announced on March 18. The Agency program was expanded on that same date. Same info from March 17:

• 10-year Treasury: 3.01% on 3/17, now 3.38%.
• 2-year Treasury: 1.03%, now 0.97%.
• Dollar: 86.933 vs. 76.139. Shows just about all the dollar decline came after the announcement of the expansion.
• Commodities: The CRB was 216.46, now 266.26. Here again, all the gain has been post expansion of quantitative easing.

So if the Fed’s goal was to weaken the dollar in order to create inflation, it looks like its working. Maybe it isn't showing up in the CPI numbers much yet, but it certainly is showing up in actively traded markets where the purchasing power of a dollar is most relevant. Furthermore, the market may be telling us that the first foray into QE wasn't enough. Only with our combined strength can we bring an end to this destructive deflation!

And that’s just the question, isn't it? No one would claim that printing money was a good idea if deflation weren't such a legitimate threat. To me, the fact that the Fed decided to buy Treasuries isn't the important point. Just the act of printing $1.5 trillion dollars to finance all these purchases is the key. They claim that part of their goal was to lower interest rates and thus encourage borrowing. Maybe that was part of the motivation. But I truly believe the Fed saw consumer and business borrowing collapsing at a disastrous pace and choose to answer with a deflation busting level of quantitative easing. Dropping the newly printed money from a helicopter isn't practical. Buying Treasury bonds is.

I’m asking you, dear reader, that if you object to what the Fed is doing, ask yourself why? Is it because you object to printing money? Or buying of government debt? Because if it’s the later and not the former, then ask yourself what else was the Fed supposed to do with the money? If it’s the former and not the later, then you must argue that deflation isn't a threat. That the complete collapse of credit creation has no impact on the de facto money supply. That’s a legitimate point of view, but not one where I can concur.

So then it comes to a matter of the exit strategy. If the Fed holds on to the debt, then the impact of the recently created new cash will reverberate beyond the current crisis and into a time when economic activity has normalized. That’s the dark path the Fed must not go down. Fed officials have recently said that an accommodative policy is warranted for an extended period. But policy needn't be this accommodative for an extended period! We've heard that the Fed is testing reverse repos as a means of removing excess reserves when the time comes. Here’s to hoping that they start removing those excess reserves is a measured way sooner rather than later.

That being said, what if the Fed uses reverse repos to remove all monetary impact of their quantitative easing project and yet never actually sells any securities. They just let everything roll off. By my original definition, that’s debt monetization. But would it matter? Would the impact on inflation, the dollar, commodities, etc., be radically different than if they slowly sold off their Treasury and Agency portfolios? Probably not.

So then it comes back to intention. Why did the Fed decide to embark on this QE journey? Is it the Fed’s intention to help the Treasury service its debt? Or is it to battle the economic circumstances in which we've put ourselves? I can’t answer that question definitively. I think it’s the later, but I’m not in on the FOMC meetings. I don’t really know.

Bringing all of this back to Echo Base, here are my conclusions. If you focus too much on the Treasury/Agency purchases, you are missing the key likely market impact. The new money creation is the primary thing here. What is done with the money is secondary. A weaker dollar, higher gold/oil/agricultural prices are not symptoms of a run-away Fed, but symptoms of an economy that was threatening deflation and now is more normalized. Finally, we need to watch how committed the Fed is to an exit. Are they willing to risk a double dip recession? Because that might be what it takes to remove the massive monetary stimulus that’s been created thus far. So far they've talked a good game. Let’s see what they actually do.

Comments

[waf76:]

Probably one of the best articles I've read.

"The Fed saw consumer and business borrowing collapsing at a disastrous pace and choose to answer with a deflation busting level of quantitative easing."

That's exactly what's happened. Unfortunately the consumer will not be back anytime soon. I don't foresee a premature exit strategy either as it would be political suicide.

Oct 13 01:39 PM

[Nick36:]

Perhaps debt monetization isn't just an internal US problem. Foreigners hold trillions of US dollars. And there is a limit to how much monetization they will tolerate before they panic and decide to get out of their US dollar positions.

And if foreigners panic like that, then it will be bank run on the Fed and the whole US financial system. Which the Fed will be powerless to stop.

Perhaps foreign central banks have agreed at the G-20 meeting to let USA monetize its $1.2 trillion Agency Debt and $300 billion of US Treasury bonds. But if the Fed tries to go beyond that without the agreement of foreigners. Then this whole thing can easily end with a huge bank run on the US government and the Fed itself.

Oct 13 02:10 PM

[Jasper M:]

"The Fed . . . choose [sic] to answer with a deflation busting level of quantitative easing."

Really? News flash, sparky - deflation ain't busted yet. Nor is it likely to be, in light of historical precedents. Operation Twist, anyone? Market forces can easily overwhelm the Fed.

Oct 13 02:24 PM

[markfl:]

I think the FOMC would very much like to start tightening as soon as they saw any evidence of inflation, as long, of course, as GDP kept expanding. If leading indicators pointed to slipping, they wouldn't do it. I don't think they'd risk a "W," and I don't think they'll even do any tightening until unemployment peaks and begins a downward trend: 3-6 months of decreases at the rate of .1 % per month. That puts us at about 12 months from now at least. I don't think they'll touch rates until the direction of the political winds is obvious after the 2010 elections, mostly because this isn't 1982 and because Bernanke doesn't have the will to face a relentless torrent of criticism. He is too interested in being liked, as was Greenspan.


On Oct 13 01:39 PM waf76 wrote:

> Probably one of the best articles I've read.
>
> "The Fed saw consumer and business borrowing collapsing at a disastrous
> pace and choose to answer with a deflation busting level of quantitative
> easing."
>
> That's exactly what's happened. Unfortunately the consumer will
> not be back anytime soon. I don't foresee a premature exit strategy
> either as it would be political suicide.

Oct 13 02:53 PM

[Tetrapod:]

Very good article! I don't think there's likely to be an opportunity to reverse the FED's purchases. I'm afraid that as the current stimulus runs down, the GDP and employment will run down with it. This will require additional stimulus and additional easing. This will continue until either we finally get inflation, or the political will runs out, and we end up in a deep deflationary depression.

Oct 13 04:45 PM

[derryl:]

I agree with other commenters, very good article. I also agree with Tetrapod. The time to unwind the monetary and fiscal stimulus is somewhere in the hazy future so it is premature to expect it soon. The secular forces of deflation are nowhere near played out and if anything I think we can expect an expansion of innovative monetary solutions (QE) to our debt crisis.

The QE that the Fed has done so far has not been inflationary at all. The Fed has simply created new dollars and swapped them for bank assets like mortgage collateral. The collateral was devalued due to the RE and general debt downturn and was threatening to plummet the banks into balance sheet insolvency. So the Fed traded those 'toxic assets', probably at face value, for newly QE created money.

So now the banks have money as assets, instead of devalued loans, and their balance sheets are healthier. When you mark money to market, the money is marked at face value. So it's a 'perfect' asset for a bank to hold, at least as far as asset valuation goes. When you mark devalued mortgage loans to market the bank takes a big hit to its capital and would very likely have insufficient capital to make up for the asset value losses. Hence insolvency. The FDIC will not be auditing the Fed's balance sheet so it doesn't matter if the Fed's balance sheet has taken on all the insolvency. As lender of last resort, this is what the Fed is supposed to do.

The Fed is allowing the banks to deposit excess reserves with the Fed at interest, which gives the banks a small income stream from the money. Usually holding money is sterile for the banks because, while money is the most liquid asset to hold, it typically pays no interest for a bank (not to be confused with another scenario where we deposit money in banks as our savings and the banks pay us some interest for it; for banks holding cash is more like if we saved our cash in a sock where it earns no interest).

All of these QE and other measures are designed for the sole purpose of shoring up bank balance sheets. The new money is merely covering old asset valuation losses and it is not getting into the economy where it could contribute to any kind of inflation. It is trapped on the asset side of bank balance sheets, and the Fed's exit strategy is very simply to keep the toxic assets until the banks, and/or the assets themselves, are healthy enough to sell back to the banks. So the Fed gets its cash back and the banks get their now-performing loans back and all is right with the world. Well, at least with this little corner of it.

Oct 13 06:38 PM

[Zouk_man:]

How much will it take? Does the Fed have the capacity?

Are the deflationary pressures bigger than the Fed?

Numbers, please.

Oct 13 07:32 PM

[TxTim:]

Just painting in broad brushstrokes here... The financial crisis wiped out about $14trillion of wealth from household and business Balance Sheets. The US estimated GDP in 2007 is $ 14.447 Trillion. The Feds QE program as stated is $ 1.75 trillion about 11% of US GDP. It seems clear to me that we will likely see a second round of QE in 2010.

I'm also of the view that a monetized $ 2 Trillion household tax credit is more in order for the second go 'round. The economic problem is consumer demand. So let's stimulate consumer demand instead of letting the Government spend the money first. People will spend it more efficiently anyway. The monetized tax credit would help people pay down debt, spend some money and get the economy moving forward again. Banks would get what they want (smaller balance sheets relative to their weak equity) and businesses would benefit and hire more people giving you the foundation you want.

Oct 13 07:50 PM

[Kinabalu:]

"Why I make a distinction between what the Fed is currently doing (quantitative easing) and debt monetization."

The definitive description of what monetizing the debt really means was answered by the St Louis Fed in 1984. It doesn't significantly differ from what is presented above. Here's the study:

research.stlouisfed.or...

The study concludes that if the Federal Reserve achieves its desired money growth objective, it is not monetizing the debt, even if money growth is achieved solely through open market purchases of government debt. The policy objectives of the monetary authority play an important role in determining whether the Federal Reserve is monetizing debt.

Oct 13 09:44 PM

[Bill S. Friend:]

I dont agree with governments continual tinkering. Basically the FED doesnt have a choice. To maintain the economy they need to shrink the debt by whatever means possible. It still wont work, but it will prolong the torturous end by years, maybe even decades. A trillion is ALOT of moola, more than most people are aware and we are in the hole for trillions. Its a scenario familiar to the financial sector whereby their greed puts us all on the hook for their misdeeds. There have been a multitude of bailouts since the eighties when the S&L bailout cost us 30 billion, (now considered chickenfeed) yet they continue to place bets on longshots. NEWS FLASH The financials are now gambling with the bailout money Paulson gave them! Thats right "ROBBERY IN PROGRESS" but the cops are at the doughnut stand. Almost makes you think they are in on the heist...

Oct 13 10:52 PM

[aussiereader4:]

Great article, I think part of the problem is that having a strong US Dollar is about national pride not logic.

I think the easing will never be reversed leaving the dollar weaker, which will be good for the USA in the long run.

There is no capacity to pay a debt accumulating at 10% GDP per annum for the foreseeable future.

The down side is that oil will be more expensive which is likely to drive changes in transport and efficiency.

Oct 14 04:19 AM

[Patrancus:]

gee wiz and I was expecting to see some indication of private sector economic growth and maybe an uptick in the private sector job market come out of all this important fed activity, nope, guess again, guess that's why i keep going long metals.

Oct 14 09:05 AM

[Leftfield:]

I'm kind of interested in the complete absence of Main St. from the shell games of monetization, QE, toxic asset purchases and other multi-$trillion acronyms that let Wall St. and Washington play on.
Government is hanging in there, proposing to inflict more damage than ever. They keep fudging everything (fudge is actually not the word) and playing hide-the-pickle with reality. Main St. seems alone in intensive care while the Fed supplies the party hats and noisemakers to Wall St. and Washington.

Oct 14 10:13 AM

[Drew Horn:]

The discussion about the FED and its monetary moves is interesting and appears to be an accurate description of the prospects for our domestic economy. But it nearly overlooks the largest risk. Should other countries decide that the dollar represents too great a risk for future volatility (in either direction) they may simultaneously decide (like a herd of water buffalo) to use another currency as their primary reserve. Too much monetization and confidence in the dollar will evaporate. A historical analysis of prior major changes in reserve currencies ( ex. the English Pound) might be instructive.

Oct 14 10:37 AM

[rennert:]

Do you really believe the financial meltdown. Remember Y2K??? Weapons of Mass Destruction?? Boy have they Goosed us. Look at the people in charge they look worried frazzled around their eyes and mouth. They had a spring in their step The bankers bought themselves a new batch of young clocking chickens. Hear them they are clocking Wallstreets tune. Yes,before the election they looked hopeful. Look at them now. They look like beaten runners on their last lap. They are worn out from manipulating our economic numbers and from pleasing the dirty Lobbyists that paid for their political success. Nader would have kicked butt, but now we have the same Olds same Olds that we had at the elections before this one. If the Grandma's of this country do not get a decent return on their CD's soon the economy will go to Zero. They are angry, they are not spending, they are persist

Oct 14 11:28 AM

[geewow:]

I thought the piece was well thought out. I feel the Fed engaged in near 0% interest to re-liquid the banking thieves that were bailed out and caused this economic collapse. They have incredibly fattened their balance sheets, gambled further on Wall Street again fattening their balance sheets without engaging in any significant amount of credit loosening but to pass out tens of billions in bonus payments. They market has been manipulated at the expense of the real economy.

Consumers are dried up. There will be no real growth. The dollar falls, and wages fall, too. The American worker has been thrown overboard in order for the investment banker thieves to be given the life preservers. If wages become third world, the country will be third world, as well. In-surplus nations are likely to go elsewhere to invest once the US consumer really stays home with their worth-less cash.

Bernanke's strategy seems to be to support and re-enrich his oligarchian pals in the banks, and give his middle finger to main and side street America.

eye-on-washington.blog...

Oct 14 11:29 AM

[secmaven:]

Japan has set the precedent for debt monetization, zero interest rates and a debt::GDP ratio that grows year after year. And the Yen is the strongest currency unit in the world. How can the US go wrong in following this model?

Oct 14 01:29 PM

[MoneyTalk1:]

Dear writer, I sit on a pile of US dollars. By monetazing debt, FED is diluting my shares. Government, first and foremost should preserve justice and equality in the society. FED has printed money, but I have not received any of it. Money belongs to us, the people. If any amount is to be printed, it should be equally distributed in the society. It should NOT be given to a certain group only. Not only that, banks should not make promisses that they cannot honor. What is that promise? It is lending out money that does not exist. Banks create money out of thin air, inflate the money supply for decades, then demand interest on that money that is not theirs anyway, and then crash the entire economy due this practice. Then FED sends the bill to me. What is right in this picture?

Oct 14 05:42 PM

[Ken Sherman:]

I agree with MoneyTalk1. Congress could spend less and cut taxes. Then there would be less debt to monetize. It's all about who gets to spend your money, you or Congress. And guess what they decided, that they could spend it better than you. This debate about inflation and deflation simply obscures the fact that the US government is taking away your economic freedom and spending your money for you. See, there are no consequences to running huge deficits. And by the way, monetizing that debt away is really just to combat deflation, you see. That awful, nasty deflation that causes depressions. We don't want a Japanese style decline or a repeat of the 1930's, do we?
Implicit in this argument is that deflation is bad. Bad for whom? Bad for debtors, such as the US government, the biggest debtor in history, that's who. Consumers would rejoice to have lower prices. Citizens would then enjoy the higher standard of living they deserve. After all, declining prices are a natural consequence of increased productivity. It is most readily observed in technology goods, where because of impressive advances (e.g. productivity increases) prices still decline in spite of government irresponsibility. But the politicians and their apologists want to convince you that deflation is bad. Don't let them. How about STOP MICROMANAGING THE ECONOMY AND STEALING OUR MONEY. The role of the government is to provide sound money and a low tax pro business environment, so free people and the businesses they run can flourish. The economy will take care of itself.
By the way, when inflation runs amok in the near future and you are lucky enough to keep up with it through smart investing, you will pay income tax on those "gains." My recommendation is to rid yourself of US dollars and instead buy foreign companies that pay dividends in sound currencies. Also, if you keep your cash in say, Canadian dollars in a Canadian bank, then spend them without converting to dollars first, you will have no artificial gains to pay taxes on just because the dollar lost value.

Oct 14 09:01 PM

[T.Geiger:]

I'm not sure that deflation is something that should be avoided by

Oct 14 10:04 PM

[T.Geiger:]

I apologize for my preceding aborted post.

I don't understand why deflation is such an undesired outcome. I'm willing to learn if someone can explain why I should fear it so.

Various sources (online) define deflation as "a general decline in prices, or a steady increase in the value, or purchasing power, of a given unit of money."
( www.fee.org/pdf/the-fr... , en.wikipedia.org/wiki/... , www.investorwords.com/... )

Is an increase in purchasing power undesirable? Should an overvalued, or overpriced asset remain that way? Should a price that is too high to attract demand not be lowered?

Whenever deflation is discussed, the subject of the "liquidity trap" is sure to follow.

Liquidity trap is defined (I'll use the University of Michigan's definition, www-personal.umich.edu/~alandear/glossary/l.... ) as "A situation in which expansionary monetary policy fails to stimulate the economy. As used by Keynes (1936), this meant interest rates so low that expectations of their increase made people unwilling to hold bonds. Today it usually means a nominal interest rate so near zero that lowering it further is impossible or ineffective."

But consider Frank Shostak's piece, "Does a Liquidity Trap Pose a Threat?" (mises.org/story/3697) He writes "Observe that in the popular, i.e., Keynesian, way of thinking, savings is bad news for the economy. The more people save, the worse things become: the liquidity trap comes on account of too much saving and the lack of spending.

Now, contrary to popular thinking, individuals don't save money as such. The chief role of money is that of the medium of exchange. Also, note that people don't pay with money but with goods and services they have produced.

To suggest then that people could have an unlimited demand for money, which leads to a liquidity trap, implies that no one would be exchanging goods. Obviously, this is not a realistic proposition, given that people require goods to support their lives and well-beings. (Note that people demand money not to hold it as such but to employ it in exchange.)

Being the medium of exchange, money can only assist in exchanging the goods of one producer for the goods of another producer. The state of the demand for money cannot alter the amount of goods produced, i.e., it cannot alter real economic growth. Likewise, a change in the supply of money doesn't have any power to grow the real economy.

Contrary to popular thinking, we suggest that a liquidity trap doesn't emerge in response to consumers' massive increase in the demand for money but comes as a result of very loose monetary policies that inflict severe damage on the pool of real savings."

It is my humble (and perhaps uninformed or unenlightened) opinion that purposefully devaluing the domestic currency is a tax. The Federal spending and resultant debt must be addressed, either through higher legislated taxes, through the tax of inflation, or repudiated as Russia and Mexico have done. Obviously the best course would be to control spending and work towards reducing the debt, but I doubt there's much political will to get that done.

Regardless of all the theory, the expansive monetary policy has made currency trading relatively easy lately, just short the Dollar.

Oct 14 11:02 PM

[Bwilson:]

//"The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost."//

You sure about that? As long as fiat currency is used as "legal tender" there is a cost: the interest that We, the People pay on all those Federal Reserve Notes...'Notes' being the key word.

Oct 15 10:56 PM

[Bwilson:]

//"The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost."//

In addition to my previous comment...the "US Government" is always We, the People...whether We, the People are aware if it or not. It's when the People forget that it's We, the People that the Bankers go wild and print money at no cost to themselves!

Oct 15 11:08 PM

[no.wins:]

Interesting article! I don't really know if a severe recession (the knowledgeable people keep saying it's not a depression) as this one is, would in the long run be worse than hyperinflation (where we seem to be heading). Just think of the Weimar Republic.
In spite of all the money printed, the Fed hasn't been able to create that much inflation. So, there seems to be more money coming. I don't believe that printing excessive amounts of money and creating ever more financial bubbles will serve the best purpose.

Oct 18 03:18 PM