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The (US Dollar) Printing Presses Keep Humming

By Rodney Johnson⋅ September 21, 2009 ⋅ ⋅ Post a comment

This week the US Treasury will issue a record $112 billion in debt. Until recently, that amount of money would represent the total US deficit for a year. Now it’s just a drop in the bucket.

Something to keep in mind, in the 2nd quarter of ‘09, the Federal Reserve bought $164 billion out of the $339 billion in net new Treasury bonds that were sold. In addition, the Fed has purchased over 75% of the debt issued by FNMA and Freddie Mac. This goes to the heart of the issue I commented on back in March, when the Fed first announced that it would purchase US debt.

Remember, the Fed does not have a bank account, it has a printing press. If the Fed is buying something, it is using newly printed dollars to do it. So the Federal Reserve is printing new money to hand to the US Treasury in exchange for bonds.

The Fed has said it will end its purchasing program in Oct. We’ll have to wait until then to see how the credit markets hold up without a buyer at the table who has a printing press in the back room.

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Discussion

6 comments for “The (US Dollar) Printing Presses Keep Humming”

If the FED is printing money wouldn’t this cause inflation? If money is created out of thin air…

Would this cause HS Dent to revise his forecast from deflation to inflation if this keeps happening?

Posted by bmx88 | September 21, 2009, 11:49 am
Rodney, I am a big fan of HS Dent and your methodology and analysis. When I read this and other articles about the continuing expansion of the US money supply (including some of Peter Schiff’s), I can’t help but think that these printing presses could lead to major inflation and ultimate dollar collapse when Asian Countries and the Fed stop or resist buying bonds. I agree with your deflationary environment as outlined in The Great Depression Ahead, but I keep wondering about monetary collapse/hyperinflation and gold as a safe haven

Posted by MacStang | September 21, 2009, 12:27 pm
If we continued to print money with abandon, there is a case to be made that the US dollar might face severe impairment. The problem is one of degree - will we print SO MUCH money as to cause such a collapse. We don’t think so. Instead, we see the US digging a bigger hole than we have already, and to no avail. It won’t cause consumers to spend any more, but it will certainly cause our (eventual) recovery to be even more muted.

We continue to see deflation as the issue. We also see the US dollar as a viable, although a little less valuable, currency.

Posted by Rodney Johnson | September 21, 2009, 4:10 pm
Hi Rodney,

A little confused… in Dents Sept 2009 update he says to Long the US dollar and that the dollar is at its near low and should strengthen over the next year as asset write offs continue, yet you seem to think it will be “a little less valuable” in your remarks.

You seem to contradict each other. Thanks

Posted by wdougan | September 21, 2009, 10:55 pm
wdougan - sorry to confuse…I’m talking longer term, as in a couple of years. Our view on the US dollar short term (right now and for the next few months), is that it is very oversold and poised for a rally.

Posted by Rodney Johnson | September 22, 2009, 4:36 pm
dose the government pay interest to the fed for conterfit money?or dose it reimburse for ink and paper.fake paper for fake paper for paper interest. is their any money?

Posted by 26picasso | October 11, 2009, 11:24 am