C-I-C, Congress, and 'Rescue'

C-I-C, Congress, and 'Rescue' (Full Version)

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kiyari -> C-I-C, Congress, and 'Rescue' (9/27/2008 2:03:04 PM)
Rumor has it that Either/or 1. China has 'closed' our Line of Credit [ 'Tough Love'? ] 2. 'The Fed' is upon the verge (coff!) of being 'virtually' insolvent. Perhaps our adoring pals world-wide shall rush in to fill this GAAP? GAAP: Generally Accepted Accounting Principles

Musicmystery -> RE: C-I-C, Congress, and 'Rescue' (9/27/2008 2:35:38 PM)
1) China is a huge trading partner. They cannot afford to simply "close our line of credit." 2) The Fed can print money. It literally can't be insolvent. It could flood monetary markets and spark inflation, but that's clearly not the case right now. Who starts these rumors?

kiyari -> RE: C-I-C, Congress, and 'Rescue' (9/27/2008 3:18:38 PM)
quote: ORIGINAL: Musicmystery 1) China is a huge trading partner. They cannot afford to simply "close our line of credit." 2) The Fed can print money. It literally can't be insolvent. It could flood monetary markets and spark inflation, but that's clearly not the case right now. Who starts these rumors? Who starts these rumors? I though EVERYONE knew, that "THEY" start these rumors?!? Levity aside... China is not out Friend. China knows that, they are no fools. China has the well-known capacity to plan ahead. 'WE' (USA) disdain the long-term view, in favor of 'short-term gains' AKA: the future be damned, so long as I got Mine! sort of 'philosophy'. Something about chess vs checkers... NEWAYS, to reply to 1.) Perhaps China has the concept of "Good Money after Bad"? That, or they may perceive that their erstwhile 'investment' is finally coming to fruition. That being: as out major Creditors, the puppet-strings may soon no longer be needed. As for 2.) My understanding of the "pretense" of The Fed and their printing of USA 'coin' is, that at least heretofore, it has been along the line of electron-positron creation, as in: a positive amount, added to an equal negative amount, is a wash. This has been accomplished, by the offering of Treasuries [aka IOUs] to buyers (often foreigners) and depending upon how many suckers... erm, buyers stepped up, there is (subsequent? concurrent?) printing of USA coin in equivalent amounts, which is then 'sold' to goobermint at 'face value'. Ya, perhaps all that is a bit mangled, but that is my understanding of the essence, here. Those with clearer vision are more than invited to step up to the plate and clear the fog, here.

Musicmystery -> RE: C-I-C, Congress, and 'Rescue' (9/27/2008 4:08:52 PM)
kiyari, OK. A few clarifications and explanations. Regarding your first rumor---it IS true that as the U.S. borrows and borrows and borrows, we reach a point where investors wonder if we can realistically cover that debt----just as you can only run your credit so high before people wonder if maybe you're over evxtended and stop lending to you. China is a MAJOR investor in U.S. debt, and they could invest elsewhere (European Union, for example) if/when they become nervous. Are we at that point? I doubt it---but economists warn we ARE getting dangerously close. For your second point--yes, the Fed typically conducts its affairs through open market operations, i.e., buying and selling Treasuries from its portfolio. But that's just one tool. The Fed also sets interest rates, mandates the amount of reserves banks must maintain, and prints money. The Fed can expand or shrink the money supply at will--they decide on the best amount of currency needed, as well as the level of money supply and credit (these are all different things), and they do not have to balance anything unless they choose to do so (they generally do). Been a while since I've been there, but the Fed does maintain a relatively user friendly informational web site, if you're interested. Hope that helps. Tim

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