The Fed's $1.2B Gamble

Discussing whether the Fed's prescription for reviving the economy will work, with Peter Schiff, Euro Pacific Capital Inc.; CNBC's Steve Liesman & Bill Seidman.
http://www.cnbc.com/id/15840232?video=1065895887&play=1

"Suppose your grandparents borrowed US$100,000 from their friends roughly 50 years ago. Back then, US$100,000 was a lot of money and the chances of your grandparents ever repaying this loan were slim at best. However, thanks to monetary inflation and the debasement of the US Dollar, today, US$100,000 isn’t a very large sum of money and your grandparents would find it much easier to repay their debt.

Turning to the present situation, the US owes its creditors a gigantic amount of money and a debt so large that it can never hope of repaying it in today’s dollars! So, the US has two options:

a. Default or bankruptcy
b. Monetary inflation

Given the fact that the US is still the world’s largest economy, owns the world’s reserve currency and has a democratically elected government, I think we can pretty much rule out the possibility of sovereign default. Therefore, you can bet your bottom dollar that the US will try its best to inflate its way out of trouble. Remember, politicians borrow money when it buys them a loaf of bread and they repay it when the same money is worth only a slice of bread!"

http://www.financialsense.com/editorials/saxena/2009/0320.html

"This week the Federal Reserve finally made clear what should have been obvious for some time - the only weapon that the Fed is willing to use to fight the economic downturn is a continuing torrent of pure, undiluted, inflation. The announcement should be seen as a game changer that redirects the fury of the financial storm directly onto our shores."

"There is a growing consensus that if China no longer wants to buy our bonds, we can simply print the money and buy them ourselves. This naïve view fails to consider the consequences implicit in such a change. When the Treasury sells bonds to China, no new dollars are printed. Instead, China prints yuan which it then uses to buy treasurers. This effectively allows America to export its inflation to China. However, now that we will be printing the money ourselves, the full inflationary impact will fall directly on us."
http://www.financialsense.com/fsu/editorials/schiff/2009/0320.html