Both of my readers have pointed out that my last blog threw us into deep water without much explanation.
I just assume that everyone is as attuned to current events as I .
The 600 billion the fed "infused" into the economy was different from the previous two bailouts in that the Bush bailout was essentially loans to companies backed by the sale of Treasury Bills. The second was gifts to banks of your tax dollars backed by the sale of Treasury Bills. Both were, as it were, "checks" written on money in the bank back in DC. It was also different in that it did not require a vote of the US Congress.
The FED infusion was something else entirely. It was a printing of money to buy T-Bills. The exact opposite of selling T-Bills to raise money. I don't know if there is a lay person analogy. At least not a legal one. But our system is built around a balanced bookkeeping system that requires that money spent must be matched by a like amount of money raised, by taxes or by sale of T-Bills, .. which is like .. humm... borrowing money on your signature at the credit union. This new infusion is the same except you don't have to pay it back.
Kinda like counterfeiting.
Well -Actually a lot like counterfeiting.
What this has done is allow the Federal Government to spend more than it has and more than it can borrow by simply printing more money.
I am not sure what this will do to our Uncle's credit score.
Take a look at the triangle above. If the imaginary part is small, that is to say that if the real economy is 200 billion dollars and we infuse, say 2 billion, then the real line and the apparent line are very close to the same amount. But if the infusion is close to the real economy it becomes a 45 degree angle and the apparent line is larger by almost half again.
The real danger is when the real becomes smaller than the imaginary. Road and pyramid builders will tell you that if the angle is greater than 45 degrees she will come down.
And my reference to the WTO .. Well check out this NPR story where they explain why we pay Brazil not to grow cotton.
http://www.npr.org/blogs/money/2010/11/09/131192182/cotton
If China gets wind of this she will want to be paid not to grow cotton too. After all they have more land and more people. China could not grow a lot more cotton than Brazil doesn't.
Maybe the WTO should be called the WTF.
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