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Reply #15: I agree with you for the most part. However, there is a limit to this, and that is the amount of [View All]

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BzaDem Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Jul-31-11 06:38 PM
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15. I agree with you for the most part. However, there is a limit to this, and that is the amount of
Treasuries the Fed already has. If the Fed has 2 trillion of treasuries, but we need 3 trillion in "jumbo coins," then the difference WILL go into circulation. (Of course, the actual coins won't leave the vault, but the credit to the Treasury general account of 1 trillion will.) That difference will go into circulation with no bonds to balance it out (and with no way for the Fed itself to unwind it later).

Now, I don't think that this will cause inflation in the near term (considering how far we are from full capacity). But it can theoretically cause inflation in the medium/long term, if the economy bounces back and the difference can't be unwound.
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