Discussion in 'Economics' started by Banjo, Oct 21, 2018.
I am sorry to say that the person who wrote this article has a very poor understanding of the the U.S. dollar. I noted this statement in particular, "“the soaring U.S. deficit requires an even greater amount dollars from foreigners to fund the U.S. Treasury." Of course this is absurd in a fiat money regime. As a routine matter, the treasury regularly spends before they borrow. Bonds are one of the tools used by the Federal Reserve to assist in regulation of the Fed funds rate and they serve as an interest bearing alternative to cash. Treasury's spending, however, is independent of bond sales. Treasury spending and bond sales only appear to be linked, in normal practice,* because treasury spending raises reserve balances which the NY Fed drains by selling bonds to prevent the funds rate from dropping too far below its target.
The Fed will always accommodate foreign Central Banks to see that the necessary supply of dollars is available to carry on international commerce. The dollar would not last long as the reserve currency were this not the case. This does not mean that rising rates won't present a problem for some with variable rate loans whose revenue can't keep pace with inflation, but that is no more a problem now than it has always been. What is important is the real interest rate, not the nominal rate. And the Fed of course tightens with an eye toward inflation.
*QE of course during the financial crisis was not normal practice. The Fed bought Treasuries on the secondary market and held them, intentionally allowing reserves to swell and forcing the Funds Rate rapidly down toward zero. It then put a non-zero floor under the rate by paying a small interest on excess reserves. But now of course the Fed is a net seller of bonds which drains reserves and moves the target funds rate back toward more typical values.
There is nothing to prevent our Government from printing more US $ unless we have a fiscal surplus?
Venezuela would like to hire you as their chief minister of finance. your remark is hilarious.
I am just a mom and pop retail trader asking a stupid question.
On second thought, isn't the USG already printed trillions of extra $ they don't have just to pay their bills? If so, how can there be a dollar shortage?
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