Phil from NZ Wrote:
Dec 14, 2012 3:37 PM
Read John Cochrane: "Inflation and Debt" The assumption behind QE via the purchase of Treasuries and other instruments, is that the brakes can be put on inflation, when it sets in, by selling off the Treasuries held by the Fed, to mop up the excess liquidity. I have an astute friend named Henry, and when I told him of the above assumption, his immediate response, without missing a beat, was "who to"? (That is, who does the Fed sell the Treasury Bonds to?) John Cochrane's paper asks the same question. If the market has (correctly in my opinion) realised that US government debt is NEVER going to be paid off, the Treasuries won't sell and there will be hyperinflation.