Is It Over for U.S. Dollar Strength in Forex Trading? »
Posted By altnrg 8 months ago in Business & FinanceQuantitative easing could mean the end of any pretensions to dollar strength in forex trading.
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Tangent0018 months ago
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I need someone to explain this to me like I'm a four-year-old.
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How can the Federal Reserve make drastic moves like 'making available' 1 trillion dollars in credit--thereby undermining confidence in the US dollar--by fiat? The Fed recently purchased T-bonds and mortgage securities to make this money available. Aren't mortgage securities a big part of what got us into this mess? Isn't purchasing these securities effectively 'bailing out' those who held them in the first place?
These aren't rhetorical questions. I'd like to know how this works.-
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Georgia508 months ago
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Money supply in the US is created by selling US securities such as US savings bonds. If there are no buyers for the additional securities, and the money (literally, green stuff) is released into the banking system, inflation will result.
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In order to buy up bad mortgages or stock in distressed institutions, the US has to raise the funds via sales of US securities. It is thought that as the portfolios are broken up and/or examined, they can be bundled off to investors, thus recovering for the US Treasury some portion of the money spent on mortgages or distressed financial institutions. Money recovered can be used to pay down the national debt. By retiring mature US securities, more tax revenues will be available later when the more late US securities mature.
That's my 2 cents worth, but it's highly abbreviated and contingent upon lots of ifs. For example, I've not heard whether other countries have signed up to buy the securities needed to float the current deficit.
No matter how the cookies crumble--the Obama administration can claim two historic firsts:
1. A Secretary of State has been dispatched to a foreign nation to beg for money not related to the conduct of a war (that is, China--to buy US securities and float the deficit).
2. A communist leader has lectured the US President about too much frivolous spending.
I see no way these can be good for America.
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