Slippery Slope . . .

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Lemonyellowschwin's picture
Lemonyellowschwin
Status: Platinum Member (Offline)
Joined: Apr 22 2008
Posts: 547
Slippery Slope . . .

The Fed buys $300 billion in long bonds.

This artificially drives down yields, which is viewed as essential to combating asset deflation.

It artificially drives down the dollar.

Given the above, foreign investors, already withdrawing, continue to withdraw or at least decline to buy new long bonds.  (They don't much more money anyway.)

Our financing needs end up being much greater than commonly understood.

Our entire debt ends up monetized.

During a recent post, Chris said that the dollar was not 100% guaranteed to die.  But what can arrest this slippery slope?  Knowing what we know, can someone show me a scenario where this cycle ends before the dollar dies or becomes very, very seriously devalued?

 

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