We have updated our quarterly US Government Debt Monetization series, this update for the 4th quarter 2012.
Any further debt monetization by the central bank now becomes counterproductive.
To put it bluntly, large-scale debt monetization is bad.
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However, because the Fed and ECB have both proclaimed that they are on hold from debt monetization and currency debasement, the same monetary environment that led to the pronounced deflation that occurred during fall of 2008 has arrived once again.
Failing to make this basic distinction helped lead to serious errors in outlook during the late 1980s, during which many observers who generally share sound presuppositions about the nature of the economy were given to histrionic predictions of national default, debt monetization, and hyperinflation.
Without having the savings to bring down rates, the Fed has supplanted savings with monetization of debt.
Gold edged up as policy-setters signaled low rates would continue until mid-2015 and monetization of debt would continue, said Zachary Oxman, portfolio manager for TrendMax.
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Leaving aside the monetization of debt, using taxes or savings to handle a large fiscal deficit reduces the amount of money available to private investment and therefore curtails the creation of new businesses and limits much-needed increases in productivity.
What difference does it make if the central bank is called upon, or if monetization of its debt leads to inflation?
While Fisher blamed the monetization of the federal debt on fiscal policymakers, his statement was a shot across the bow of those who expect easy money to continue forever.
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