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JonSCKs...Fed to monitize 90% of new debt
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John Burns
Posted 12/5/2012 10:15 (#2734108 - in reply to #2732559)
Subject: as long as the debtors can pay



Pittsburg, Kansas

It will as long as the debtors can pay off the loans.

If they can't, either the Fed loans them more to keep them going or the Fed takes a hit to its balance sheet with a write off.

Think of it as being in a position of a regular bank that has over sized loans to a farmer that is loosing money every year. They have the choices of  1. keep loaning him money to keep him going and so he can keep making modest payments, or 2. sell him out knowing that the hit to their own balance sheet from the loan loss will also put them into bankruptcy (because this bank is over leveraged also). It is a loose, loose situation so they do the lesser of the two evils and keep all the balls in the air by loaning him more money (this is assuming no regulator is there to tell them to do otherwise - real life for an ordinary "not too big to fail" bank is a bit different). Of course a miracle could happen and crop prices could go to the moon and the farmer could be "ok" and eventually make ends meet. So that is what they keep "hoping". In the mean time the farmer keeps spending like there is no tomorrow. Sound like a happy ending scenario?

If things were more "normal" lots of things could be done. Problem is, all the "normal" stuff was tried long ago and everything is approaching the end of the rope.

The magic hats the Fed has (which they are trying to pull rabbits out of) that any ordinary bank does not is 1. they have no regulators to shut them down except congress and considering the Fed is financing congress profligate spending their interference since Ron Paul's retirement is unlikely and 2. they have a printing press.

Excessive use of the printing press has always historically led to one place. Eventual failure of the currency.

John



Edited by John Burns 12/5/2012 10:45
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