Stimulating infrastructure does a lot to the economy
By Daniel at 23 April, 2009, 11:48 pm
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The BOJ is correct. Very little of the stimulus package actually goes for infrastructure and job creation that can turn the economy around. There is already talk of another stimulus package in Congress, plus a water bill and energy bill and other spending they hope will stimulate growth.
However, all that money has to be printed. Just what we have already committed to borrow will exceed what the world has available to lend us by about 4 times. That means more monetizing of debt like the $7 billion the Fed did today.
The FED has to keep buying long term debt being sold by nations selling long term to buy short term debt that gets rolled over so that when interest rates rise, they won’t be trapped in low interest long term bonds.
To do that, however, and keep rates low to keep mortgage rates low, means the FED ends up buying more long term debt than they can sell short term debt to make up the difference with. The nations with long term debt have the FED over a barrel. If the FED doesn’t buy what they sell, interest rates will rise too high for our economy to recover but, if they do buy it, they can’t find enough other lenders to cover the cost.
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