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And what kind of interest rate will the next treasury auction fetch if this were the case
You hit the nail right on the head!, Sure we could print off a bunch of worthless pieces of paper and pay off all our debts in one night, But no one would ever buy our debt again and then what? Its not like our government is going to live within it's means.
And what about the average person who's savings is now worthless and whole pay check won't buy a loaf of bread?
Claiming that we can print our way out of debt in minutes is retarded, because doing so would destroy our whole economy.
I always knew that liberals believed in magical money trees
I have no interest in your liberal vs conservative nonsense, this is the business forum not the political forum.
Anyhow, the reality is that there is a "magical money tree". The FED can create as much money as it wants, of course there are consequences to this but the consequences depend on the particular economic environment. The FED added trillions to its balance sheet recently and prices are stagnant, but if the FED did this when the economy was booming it would produce increases in aggregate prices.
You hit the nail right on the head!, Sure we could print off a bunch of worthless pieces of paper and pay off all our debts in one night, But no one would ever buy our debt again and then what? Its not like our government is going to live within it's means.
The US does not really need foreign investors and it would actually be a good thing if China and friends stopped buying our debt because then they would be forced to stop manipulating their currency.
Furthermore, why would the paper be worthless? The FED created trillions during this crisis and the dollar is now stronger than it was before the crisis. The FED's actions have much different effects on currency when the economy is in the dumps than it does when its booming, this should be pretty obvious to anybody actually looking at the data.
Lastly, even if you could devalue the dollar it would help jump start the economy. The US has a trade deficit and a devaluation would make imports less attractive and our exports more attractive.
Quote:
Originally Posted by roadrat
And what about the average person who's savings is now worthless and whole pay check won't buy a loaf of bread?
You are assuming the printing by the FED would increase aggregate prices, but that is unlikely in the current economic environment. But, price inflation (like deflation) has winners and losers. Although it may hurt some savers, it would help people that were heavily in debt.
The US does not really need foreign investors and it would actually be a good thing if China and friends stopped buying our debt because then they would be forced to stop manipulating their currency.
If China and other foreign nations do not buy the debt then who will? Furthermore, no nation including the U.S. could buy foreign currency to manipulate its currency exchange rate because it would quickly either run out of reserves or accumulate excess reserves. This is why a crawling peg (flexible exchange rate) is used instead.
Quote:
Originally Posted by user_id
Furthermore, why would the paper be worthless? The FED created trillions during this crisis and the dollar is now stronger than it was before the crisis. The FED's actions have much different effects on currency when the economy is in the dumps than it does when its booming, this should be pretty obvious to anybody actually looking at the data.
The dollar is stronger now relative to what? The Euro? True strength of any kind can not be defined by another's weakness. The dollar only "appears" stronger relative to the euro due to the euro zones own sovereign debt problems and the uncertainty surrounding it. Even with the lingering uncertainty the euro has been regaining it's "relative" strength against the dollar. As long as real interest rates in the US remain where they are the dollars weakness will persist.
Quote:
Originally Posted by user_id
Lastly, even if you could devalue the dollar it would help jump start the economy. The US has a trade deficit and a devaluation would make imports less attractive and our exports more attractive.
Sure, exports are always more attractive if the domestic currency is devalued. What exactly are we exporting these days??? America has not been an export based economy for some time now. So while the statement is true, it is not really relevant.
Quote:
Originally Posted by user_id
You are assuming the printing by the FED would increase aggregate prices, but that is unlikely in the current economic environment. But, price inflation (like deflation) has winners and losers. Although it may hurt some savers, it would help people that were heavily in debt.
You are right, because we have low demand with a rising money supply aggregate prices are not rising. However, lower interest rates hurt savers a lot more than they help people heavily in debt. Lower interest rates simply improve the profitability of the debtors as they increase the spread they make on the debt as people who are heavily in debt in this environment have a higher risk profile and premiums have been adjusted. In the future the nature of our retirement will be how much cash we can put into LT Treasuries and what the risk free rate is at that time. So, for most of us a higher interest rate will be preferable to a lower one. Also, a higher interest rate is usually the result of a higher level of economic activity which in my judgment is good for all.
The US does not really need foreign investors and it would actually be a good thing if China and friends stopped buying our debt because then they would be forced to stop manipulating their currency.
Furthermore, why would the paper be worthless? The FED created trillions during this crisis and the dollar is now stronger than it was before the crisis.
Relative to the Euro, the dollar is stronger, but not relative to other currencies; e.g., the Chinese yuan and Malaysian ringgit. The US dollar has weakened against some Asian currencies throughout this crisis.
If China and other foreign nations do not buy the debt then who will?
The debt can be dealt with domestically, the US has not always been dependent on foreign individuals/nations buying US debt. A lot of the foreign purchases are due to the dollar being a reserve currency rather than some need by the US for them to purchase it. The foreign purchases keep rates down and domestic investors look else where.
Quote:
Originally Posted by Authenticity
Furthermore, no nation including the U.S. could buy foreign currency to manipulate its currency exchange rate because it would quickly either run out of reserves or accumulate excess reserves.
Yes, if a nation did this they would accumulate excess reserves, you do realize that China has trillions in US debt right? That is their "accumulated excess reserves". China does not float its currency against the dollar, rather there is a soft peg.
Quote:
Originally Posted by Authenticity
The dollar is stronger now relative to what? The Euro?
The dollar index measures the general strength of the dollar, see it here:
What exactly are we exporting these days??? America has not been an export based economy for some time now. So while the statement is true, it is not really relevant.
This is just a commonly repeated myth, the US is one of the top exporting nations:
The US manufacturing sector contributes around $1.7 trillion to GDP. But manufactured goods are not the only goods that can be exported, the US can export Food, Movies, Music, Software, etc.
Quote:
Originally Posted by Authenticity
However, lower interest rates hurt savers a lot more than they help people heavily in debt.
Why is that? The reduction in rates just takes money out of savers pockets and gives it to debtors pockets where as high interest rates would do the opposite. People with high debt today are no more risky than they were before, in each case its how their debt compares to their income that matters.
But the point I'm making is not that low interests are universally good, rather that the FED can pump trillions into the economy without much risk of fueling price inflation. Once the economy started to recover the FED would have to start sucking this money back in.
The FED can keep interest rates on treasuries low by monetizing US debt.
FED only sets interbank lending rates,REAL interest rates for everything in the real world are set by the bond and currency markets.
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