Monetizing Debt in High Gear

But somehow I can't believe
That anything should happen
I know where I belong
And nothing's gonna happen
--Tal Bachman

Nice observations here by Frank Shostak. Discussing the FOMCs recent announcement to add $45 billion in monthly Treasury bond buys to already $40 billion in monthly mortgage purchases, he estimates that the Fed's balance sheet will grow from $2.9 trillion now to $4 trillion by end of 2013.

This is what 'monetizing debt' looks like when kicked into high gear.

As any reasoned person understands, printing money does not create wealth. The Fed's idea, really the Keynesian idea, is to create credit out of thin air and hope that it stimulates economic activity. Thus far, however, most of the credit created has stayed on bank balance sheets, where banks have been using it to trade in their own accounts.

Shostak states that we should be thankful that the banks are not aggressively aggressively lending all of this credit money, because it would create serious inflationary consequences.

The Fed seems to think that they could easily reverse their easy money policies should aggressive lending begin. This is highly doubtful.

The growing enormity of this problem makes me increasingly skittish about holding cash. In fact, I'm viewing the current weakness in gold prices as an opportunity to swap dollars for metal.

position in gold