Good Defense

Larry LaBorde The announcement that Dubai is going to push its bond payment forward to next spring (default on the interest payment) sent shock waves through the financial world this past week. If rich Arabs who build indoor snow slopes to ski in the desert can not be trusted to repay their loans well then - who can we trust? With states and municipalities hurting from reduced tax revenues their bonds are being looked at with skepticism as well. The deflation crowd has scared bond interest rates to an all time low. The Federal Reserve has painted itself into a corner. If they keep rates this low for much longer then foreign investors will pull their funds out of the US since inflation seems to be much higher than interest rates. If they raise rates to attract foreign investment to purchase our debt it just might throw the fragile US economy into a tailspin. Their only choice is "quantitive easing" which is just a nice phrase for monetizing the debt which is highly inflationary. They can just keep the interest rates low, run the foreign capital away and buy the debt themselves with newly printed money (they just use fresh digits now, no need for all that messy ink and paper expense). After all, with most of our debt converted to short term debt a rise in interest rates would quickly send our deficits soaring (soaring even higher that is) just to pay the extra interest expense. So it seems that quantitive easing is just what the monetary doctor ordered. continua: http://mercatoliberonews2.blogspot.com/2009/12/good-defense.html