With politicians no longer concerned with deficits and preferring inflation over taxation as a means to finance their projects, we should soon see some hard evidence for inflation, and as it happens, this is exactly what we find when we look at the balance sheets of primary dealers of US debt.
Primary dealers are banks that buy debt issued by the government with the chartered purpose of selling it to investors. These banks act as wholesalers. They buy big quantities of debt that they sell in smaller chunks to actual investors.
These banks can do this because they have the chartered right to print money. There is no practical limit to how much US debt these banks can buy. They are only limited by regulations laid out by politicians.
Primary dealing is pure inflation. Every penny used is conjured into existence from nothing. It is only when the wholesale debt is sold on to investors that the debt gets matched with real assets. As long as the debt is held by primary dealers, no actual resources are involved. The volume of currency is increased without a corresponding increase in resources.
It is therefore a sign of rampant inflation when primary dealers start hoarding US debt. This is going on right now, which means that the government has received a lot of currency with no matching resources. When the government goes out to spend this money, it will drive up prices. The result will be price inflation on whatever government and government workers spend their money on.
The only way massive price inflation can be avoided at this point is if primary dealers succeed in passing the debt onto real investors who will give real resources in exchange for the debt. This happened during the last big debt spree by the US government, and some believe that this will soon happen again. However, with the US government acting aggressively towards foreign nations that have traditionally stepped in to buy debt, and with pension funds starved for money, this seems unlikely.
The only buyer that is likely to come in to buy the debt currently piling up at the primary dealers is the bank of all banks. The Federal Reserve, with an unlimited capacity to print money will soon appear as the buyer of last resort. However, the Federal Reserve is no more a fountain of real resources than primary dealers. It does not matter if the debt is hoarded by the dealers or by the Fed. Government and government workers will compete with the average Joe and his hard earned money. They will drive prices up, leaving Joe poorer in the process.
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