Friday, February 1, 2013

Potential triggers for inflation

In my last post, I discussed inflation and the very lack of it today. We are bordering on bankruptcy and it just does not look like that for most Americans. Some of the events that could CHANGE all of that
in a hurry are already in motion:

China has decided that it simply cannot continue to purchase U.S. Bonds. China changed this policy about a year and a half ago and stopped purchasing our debt. The United States has responded by having the FED purchase the bonds that China was buying. This reminds me of how the housing market got into such trouble. Fannie Mae and Freddie Mac bought all those sub-prime mortgages. The U.S. Bonds are not such poor investments, YET. We have already sustained a drop in rating. Another is being considered. The U.S. Dollar could lose its reserve currency status. This would be a devastating loss for us. It is calculated that if this occurred, the dollar would lose 25% of its value.

What if the Fed is forced to raise interest rates? The Fed simply cannot afford to raise rates. This is because when it does so, the interest on the debt will balloon. The money due will have to be printed, the economy cannot boost productivity nearly fast enough to begin to offset.

When economists speak of something happening 'overnight', they really mean over a short period of time, such as a few weeks or months. The problem is that most people are not watching. The news media has very little understanding and even if they did, the events are subtle and not newsworthy. Until it is far too late. This is why it appears to happen overnight.

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