4/22/2011 PERMALINK
'Bernanke's Choice' is no choice at all. I keep reading in the financial media about 'Bernanke's Choice' of whether to keep printing money or not. The simple fact of the matter is that the Fed is buying $100+ billion per month of Treasuries. Because Congress is running even more than that in monthly deficits. And the Fed is Congress' banker of last resort.

There are no investors waiting in the wings to snap up all the Treasuries Bernanke is buying. Not at current interest rates, and there is simply no telling how high interest rates will spike if Bernanke stops buying the $100+ billion in Treasuries monthly that is necessary to keep funding Congress' obscenely destructive levels of deficit spending.

With the US Gov on the hook for over $20 trillion including Fannie/Freddie/FDIC debt, each 1% increase in interest rates, ultimately translates into an annual deficit increase of around $200 billion.

If Bernanke stopped buying, the country's finances would go into a textbook death spiral feedback loop. With each increase in interest rates ballooning the deficit further. Thereby raising the risk for investors ever higher, which will cause them to demand ever higher interest rates.

It is a path Bernanke wouldn't dare take us down. So until Congress stops running such obscenely high deficits. The only real choice Ben Bernanke has is whether to continue openly printing money to fund their massive deficits or try to figure out some clever financial gimmickry that covers up the fact that the Fed is funding Congress' ruinous irresponsibility.