Direct FED Purchase of T-Bonds is the Key. Boom!

On various forums there has been much discussion of the inflation vs. deflation argument. I know that inflation is occurring but it has not yet hit the CPI (either government stated or legitimate). The key here was actually hinted at in the FED minutes today. FOMC transactions will soon bring in massive quantities of long bonds, as the government trades bonds for stimulus cash. The FED will be forced to purchase the Obama stimulus package, Iraq and Afghan wars, bank bailouts, etc. Much of this NEW money will directly enter the economy, sure some may be saved, but the only way to boost the savings rate substantially is to increase the interest rate. Will that happen? (Remember government fears recessions, not inflation, at least in the beginning).

If the FED starts direct financing of the of the long-Treasury auctions the best case will be the 1970’s, the worst case is Zimbabwe/Weimar. The FED has probably already started given some published data points. Make no mistake Bernanke is walking the rope. The only question is when?