This could be the opening statement of any one of several posts here in regards to Fed monetary policy and the resulting impact on the American Economy. However, Antal Fekete’s thoughtful article articulates the issue, and process, in terms of its inverse relation to the liquidation value of debt:

Thanks to the Fed’s open market purchases, (speculators) are always able to replace their fast-maturing bills with fresh ones so as to maximize their bond/bill spread. The more aggressive the Fed is in increasing the monetary base, the wider the spread and the greater the bond speculators’ profits.

This article is a must read from the San Francisco School of Economics.

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