Can US have QE3 without increasing debt ceiling limit?

[jparrie]

yes the Fed can start QEIII without a debt ceiling raise but they can't buy US Treasury debt with the printed money.

So bond prices fall, interest rates go up, stocks and commodities fall, the economy goes into recession/depression. The US dollar rallies for a while, then as reality hits home, it tanks as foreign investors sell up, repeating all the above. The reserve currency becomes worthless, China re-introduces a return to the gold standard as it takes up the helm as the new reserve currency.

Wayne Swan saves Australia!

 

[Old Codger]

The US Congress has no real choice.

The annual balance sheet is US$1.6 Trillion in the red now, and that will almost certainly increase greatly in coming years. That $1.6T must come from somewhere, and nobody overseas is interested in coughing up the readies.

That means they flog the Bonds domestically, and that means they must print the US$ notes to buy the US$ Bonds. Otherwise the USG cannot pay its wages bill or keep the military going, or any other expense. QE3 may well be called something else, but it WILL be the printing option. The presses MUST restart by about August.

Then they will bring in QE4 and QE5 and QE6 and.........

Just like Germany 1923.



OC

 

[jparrie]

That means they flog the Bonds domestically,

So the Fed buys the bonds, stock market rallies, commodities rise, interest rates are kept at artificially low rates, everyone's happy. Oh, until inflation goes up - and up, and up...

 

[Nukz]

I believe what they are currently doing to delay to raising of the debt ceiling is buying treasury's using state pension funds which they could continue to do as long as there is money in the pension funds to use.

Although politically this is suicide as Obama has a election coming up in 2012 and no retiree's or baby boomers are going to vote for something who's a potential threat to there retirement.

 

[fishball]

I believe what they are currently doing to delay to raising of the debt ceiling is buying treasury's using state pension funds which they could continue to do as long as there is money in the pension funds to use.

Although politically this is suicide as Obama has a election coming up in 2012 and no retiree's or baby boomers are going to vote for something who's a potential threat to there retirement.

I'll wager most people would have no idea that their pension funds or 401k are going into treasury bonds

They're probably more interested in whether or not Obama's birth cert is real or not

 

[Nukz]

I believe what they are currently doing to delay to raising of the debt ceiling is buying treasury's using state pension funds which they could continue to do as long as there is money in the pension funds to use.

Although politically this is suicide as Obama has a election coming up in 2012 and no retiree's or baby boomers are going to vote for something who's a potential threat to there retirement.

I'll wager most people would have no idea that their pension funds or 401k are going into treasury bonds

They're probably more interested in whether or not Obama's birth cert is real or not

Your probably right, if its not on Fox news then i don't think many will know. I believe Bernanke is up for re-election this September which might be interesting.

 

[spets1]

re-election????? since when was there elections held?
Seriously though. I really lieke the signature someones has here:
"I used to get angry, now I'm just amused" or something along those lines...

 

[Lovey80]

But back to the original question, yes the Fed can start QEIII without a debt ceiling raise but they can't buy US Treasury debt with the printed money. So that creates an even bigger question if the debt ceiling isn't raised and that is, what will the Fed buy with those dollars? If you can work that out in advance and could crystal ball the failure of a debt ceiling increase you could be a very wealthy man.

Cheer

Chris

That is the problem with a gold/anything backed currency is if the AUD was backed by Gold the US FED would print $$$$$ buy AUD and redeem for gold and what did the pile of gold cost them? Zip. So a gold backed currency that is NON redeemable would have to be in place and this IMHO is not something you can trust pollies to do as you would find they have either printed too much $$ or do not have the gold they say they have to back it up due to dodgy accounting standards ALA fort knox

Well not really, where are they getting the AUD from? It's not like the RBA(or what ever is in place when the AUD is put on a PM standard) can just print paper for the exchange. They have to take gold on board to make printing start. If AUD is locked against gold and the USD is still printing the exchange rate between the AUD and the USD would be enormous (parabolic). Everytime the Fed printed the exchange rate would get worse as the RBA/equiv couldn't do so and it would be relatively like Zimbabwe in comparrison. Now the AUD is not held in vast numbers by other countries right now, so most of the AUD is in the hands of Australian companies/people. So if this is the case who is willing to trade the USD for their gold backed AUD????

What is the point of a gold standard if it is not redeemable? Although as long as the Aus central bank was bound by law to have x amount of gold per paper print it would be the same effect.

The US physically couldn't do it. If they found a way (open to suggestions on how they could do it) it would end their reserve currency status.

 

[Old Codger]

One of the things that made me take notice of the US economy was way back in about 1983.

I read a report in the Bank that I worked for that told the story of the US Congress passing a Bill that mandated that ALL the reserves of the US Social Security Department be invested in US Treasury Bonds.

In other words ALL of the funds set aside (contributions) to pay for the pensions of the future were being BORROWED by the US government, and then SPENT by them. It is now simply another DEBT being carried by the Treasury.

The entire US economy is a house of cards waiting for a windy day.


OC

 

[Lovey80]

One of the things that made me take notice of the US economy was way back in about 1983.

I read a report in the Bank that I worked for that told the story of the US Congress passing a Bill that mandated that ALL the reserves of the US Social Security Department be invested in US Treasury Bonds.

In other words ALL of the funds set aside (contributions) to pay for the pensions of the future were being BORROWED by the US government, and then SPENT by them. It is now simply another DEBT being carried by the Treasury.

The entire US economy is a house of cards waiting for a windy day.


OC

Thats correct every single pension fund and medicare/medicade is unfunded. So all of these funds "set aside" by workers have been spent and have to be paid out in the future. The US does their accounting differently to the rest of Europe were the unfunded liabilites count as a debt to the gov't. Not so in the US. I read somewhere and the figures are hazy but if all the unfunded liabilities were counted as debt (which they are) then the US Debt to GDP ratio would be somewhere in the vacinity of 1000%

So when the collapse begins it will be monumental, as soon as the world wises up and stops buying tresury debt and or refuses to use the USD as the reserve currency the house of cards comes crumbling down, and hard!

 

[Lovey80]

The US Congress has no real choice.

The annual balance sheet is US$1.6 Trillion in the red now, and that will almost certainly increase greatly in coming years. That $1.6T must come from somewhere, and nobody overseas is interested in coughing up the readies.

That means they flog the Bonds domestically, and that means they must print the US$ notes to buy the US$ Bonds. Otherwise the USG cannot pay its wages bill or keep the military going, or any other expense. QE3 may well be called something else, but it WILL be the printing option. The presses MUST restart by about August.

Then they will bring in QE4 and QE5 and QE6 and.........

Just like Germany 1923.



OC

Thats exactly right, either they come up with a "super budget" where they cut spending to the point that tax revenue = budget spending or they simply default. Now if a large part of that spending is paying interest on current debt then the cuts will have to be MASSIVE. To the tune of around $150Billion a month. And then they have to be able to do this permenently( this brings with it it's own set of consequences because GDP will drop immediately). OR They go down the hyperinflation path of Germany and Zimbabwe and it falls in a heap. If option 2 is taken I can't forsee ANY possible solution that will stop this snow ball collapse other than congress refusing to raise the debt ceiling ever again.

 

[Old Codger]

Lovey80,

I simply cannot see or imagine that America can reduce its expenditure and increase income, to make that US$1.6 Trillion turnaround.

I am also quite CERTAIN that all this USD printing is a DELIBERATE tactic to generate the inflation to make the repayment far easier.

That will get rid of the US$16 to $20 Trillion of debt over the next 18 months, but will ALSO destroy the US pensioners and their monthly income, the Pension will buy SFA!!!!!

Holders of US Treasuries around the world will end up with ship load of worthless Greenbacks.

The Debt Ceiling debate is a charade that happens every year or three, and is designed to make an impression on the sheeple and get the pollies re-elected.



OC

 

[Lovey80]

An economic good requires both time and effort to produce. Money is an economic good. In any advanced economy, it is the most important economic good there is because it acts as the medium by which ALL other economic goods are exchanged. As a medium of exchange, the most important difference between money and all other economic goods is that an increase in its "supply" does NOT result in an increase in wealth. Mr Bernanke stands out as being the most insistent that this increased supply of money has NO effect on the exchange ratios between money and goods which are prices.

I lost my original reply, but very very good post Projack. Bernanke is a complete and utter imbocile. For Firstly either believing what he is saying is true or that secondly, that sound minded and even half educated people will actually believe this.

cheers

chris

 

[Old Codger]

lovey80,


"Bernanke is a complete and utter imbocile."


Either that, or he has been planted in that role to bring about the 'final solution' to the "debt question".

He is a highly trained economist, and I think my theory is the most likely one. NOBODY could be that stupid!!!


OC.

 

[Lovey80]

Lovey80,

I simply cannot see or imagine that America can reduce its expenditure and increase income, to make that US$1.6 Trillion turnaround.

I am also quite CERTAIN that all this USD printing is a DELIBERATE tactic to generate the inflation to make the repayment far easier.

That will get rid of the US$16 to $20 Trillion of debt over the next 18 months, but will ALSO destroy the US pensioners and their monthly income, the Pension will buy SFA!!!!!

Holders of US Treasuries around the world will end up with ship load of worthless Greenbacks.

The Debt Ceiling debate is a charade that happens every year or three, and is designed to make an impression on the sheeple and get the pollies re-elected.



OC

My thoughts exactly, the US has been fiscally retarded for so so long that they don't have a clue how to balance a budget.

Hence why stacking PM's will prove to be the best insurance for all. With China and India already chewing huge and ever increasing demand, once the US Sheeple realise and start stacking also this is the big set up for the hyperbull run in PM's

 

[Lovey80]

lovey80,


"Bernanke is a complete and utter imbocile."


Either that, or he has been planted in that role to bring about the 'final solution' to the "debt question".

He is a highly trained economist, and I think my theory is the most likely one. NOBODY could be that stupid!!!


OC.

BINGO!