This begs the question: Where will it all end? The political/banking class seem to have it figured this way as well. "Since our growth is based on consumption and the world seems at this point willing to finance our consumption(growth) by not wanting to miss out on the 'strongest' economy on earth and will purchase our debt in ever increasing amounts, lets sell it to them and pay them back later with money that will buy less then than it will now. " Great plan right? At some point, even if the US is "to big to fail" foriegn governments have to come to the conclusion that they will never see a real return on investment after factoring in the inflation/loss of purchasing power of the dollar. In the mean time how high will bond yields have to go and how low the price to continue to induce them to finance our profligate ways? When will they have to conclude that the risk to their own finances is so great that they will have to cut their losses and dump our bad debts? Every inflationary expansion in the history of economics has come to a bad end. It is unlikely that this time it is any different.
Yes the foreign exchange market will settle this ..... If you buy a bond, the government guarantees you that you'll get your 5% or whatever on the purchase price. But they don't guarantee that the value of currency might be worth only a small fraction of what it was worth when you purchased the bond in the first place.
I'd ask this question too. Bush seems to have ignored the deficit issue. The debt ceiling has been raised to 9 trillion, it can't keep going up for too long. It will be a hot topic in 2008 election.
Your praise may be a little premature. Flooding the economy with almost free money may only have delayed the day of paying the piper. But whatever the end result, Greenspan will always be able to say "Not while I was running the show"
Doubling the rate is a pretty big deal. Imagine doubling the rate that people get killed by lightning each year or in car accidents or by plane crashes. John
While I understand your thinking, I don't think either of your examples would cause much notice. How many folks were killed by lightning last year? Here are the lightning stats from the national weather agency: The average number of deaths from lightning is more than 100 a year with several more deaths from lightning related fires. Lightning injuries account for 3-5 times than those of lightning deaths. Somehow I don't think that would sound any major alarms. Funny too, the agency said that total could be cut in half if the golfers would use better judgement.
Anyone put any stock in the theory that after the dot com bubble burst that Greenspan propped up the housing market to pick up the slack? Stacy
yes of course. but i'm not sure i'd place too much planning on his shoulders. he panicked and flooded the world with liquidity. it happened to flow into housing. but it really goes back one step further though with japan printing unlimited money at 0%. the carry trade + greenspan liquidity = free money for everyone. a huge part is the carry trade that gives mortgage bankers an unlimited market... who cares about underwriting standards, we've got BUYERS! package 'em up and sell 'em. no risk!