Message:

<p>[QUOTE=&quot;Cloudsweeper99, post: 1112274, member: 3011&quot;]Thanks for the example to prove my point.&nbsp; If China sells T-bonds, how will that cause &quot;instant&quot; inflation?&nbsp; I&#039;d like to know the mechanism whereby that transaction increases the US money supply.&nbsp; Let&#039;s run through it...&nbsp; China sells the T-bonds to Japan.&nbsp; So what?&nbsp; Whether they pay with dollar reserves, yen, gold, or yuan, there is no increase in the money supply - just a transfer.&nbsp; Let&#039;s try another scenario where China sells the T-bonds in the USA.&nbsp; It probably drives down the price of the bonds temporarily [unless the Fed buys them] until the transaction is completed, and China gets $0.50 on the dollar in US dollars to spend and the pension funds or other buyers get T-bonds at a bargain price for their cash.&nbsp; If China spends the cash in the US for wheat, timber, cars, etc..., the economy improves -- this is what the Fed and US Treasury have been praying for for two years -- someone to spend money other than the Federal Government.&nbsp; Otherwise it is a wash if they reinvest it in the stock market or commerical real estate to create an investment boom.&nbsp; I guess we should send them a thank you note for that one.&nbsp; Another thing to consider is that a half trillion dollars in bonds isn&#039;t that big a deal anymore -- it&#039;s smaller than QE2.&nbsp; How does this transaction cause hyperinflation?&nbsp; It doesn&#039;t, except in the imagination of a few doom and gloom authors with no training in economics.&nbsp; Hyperinflation doesn&#039;t happen because someone sells existing bonds.&nbsp; Please explain the mechanism to us.</p><p><br /></p><p>Edit:&nbsp; One other thought... The most likely scenario might be that the US Treasury will purchase the bonds sold by China for some discount to par for a bulk sale, and pay for them by selling additional bonds to the Fed at par.&nbsp; This will instantly decrease the national debt by an amount greater than the new cash required to do so.&nbsp; Again, thank you China!!!</p><p><br /></p><p>Edit2:&nbsp; What I should have pointed out is that bond trading in the US exceeds $800billion per DAY.&nbsp; Even if China wanted to dump all of their holdings, it would just be a small blip on the long term chart although the psychological damage to the market could last for months.[/QUOTE]</p><p><br /></p>

Your name or email address:

Do you already have an account?

• No, create an account now.
• Yes, my password is:
• Forgot your password?

Stay logged in