Alexander Mizan

Is the U.S. Solvent?

I am not sure but from what I remember from my Macro class in college it should go something like this:
1. Fed lends money to banks throught the discount window at the discount rate (fed funds rate + 50 bp)
2. Banks right now instead of lending it out to businesses, individuals etc are afraid. Instead they are hoarding it. They don't really lock the Ben Franklins in vaults. What they do is Buy Treasuries at ridiculously low rates (10-year is now trading at 2.40%). The Fed is basically forcing them to borrow at the window due to the so called "target rate" but that's a topic for another discussion.
So, as of right now the excess monetary supply has not yet hit the real goods market (main street) and that's why we are not seeing any signs of inflation. But at some point the banks will realize that it's stupid to buy T-bills at these stupid levels and find "better" return scenarios in other investments. The spreads between the G-bonds and the C-bonds will close and the corporate market will get flooded with money. That will be the bottom and possibly (if the fed doens't start raising rates quick) the start of runaway inflation like some pundits claim.
So, watch out for the corporate bond market and watch those spreads. Once the banks flood that market with money, it's like a show of confidence that there will be no bankruptcies. The companies basically take all this cheaply borrowed money and start spending it in investments, goods, you name it. Then you have too much money chasing too little goods (i.e. inflation).

My two cents.



On Jan 09 09:51 AM Long John Silver wrote:

> When the Fed starts buying up all the new Treasuries that need to
> be issued, exactly how does that result in monetizing the debt? I
> know intuitively that this must be correct, but technically, how
> does the money that the Fed gives the Treasury get into circulation?
> Is it through government expenditures (e.g., procurement on contracts,
> Social Security payments etc?). Insights?
>

U.S. Dollar: The Trade of the Decade

PATHETIC!

You are talking about future appreciation in the assets the Govt is buying (Uncle Sam is buying on the cheap) and then in the immediate paragraph afterwards you are talking about deflation, crashing commodities prices and a stong dollar and savings rate.

Write a new article when you start making sense and stop contradicting yourself. Oh, and can you sell me some Yuan futures vs. the Dollar. I cannot buy them as a small investor in the currency market becuase of restrictions but if you are so eager, then maybe we can trade off the books.