"April existing home sales rise by 2.9 percent"

for the bigger picture:

http://www.calculatedriskblog.com/2009/05/existing-home-sales-in-april.html

ericho, i apologize if you've gone over this in another thread. do you rent or do you own? i would guess you are an owner by your postings

It's important to note that close to half of these sales were foreclosure resales or short sales. Although these are real transactions, this means activity (ex-distressed sales) is under 3 million units SAAR.

All that counts...

"The number of unsold homes on the market at the end of April rose almost 9 percent from a month earlier to nearly 4 million. That's a 10-month supply at the current sales pace."

Im still lickin my chops for the shoebox im gonna be able to afford soon in the new crime ridden manhattan

stevejhx - dont bother, he doesnt get it. All the bad stuff doesnt mean anything, because existing home sales are up 2.9%. Thats all that counts

It's undeniable to me that there are many "green shoots" pointing to a stabilization. At some point, all the mountains of stimulus could indeed lead to growth. However, interest rates are at historic lows for mortgages. Does anyone remember when a sub 5% 30 yr fixed was insane? Now it's par for the course. All the money printing and stimulus does not come at zero cost. The dollar will continue to weaken and the massive pump and dump the treasury is doing is steadily increasing yields - and that is despite our esteemed fed's best attempt at quantitative easing. once inflation kicks in (and the commodity run has been one of the primary green shoots), we are going to have a situation where banks will STILL demand a high credit spread while the 10 yr will continue to steepen. Net net, I wouldn't be surprised to see interest rates at the 7-8% level within a year or two. How can high priced housing stock in nyc possibly rally on the back of that?

marco_m, maybe it will be a Jimmy Choo shoebox, though.

UD, and to think, that's all they could manage when the gov't was essentially giving away mortgages, and foreclosures were flooding the market? as the econoday mortgage app analysis said, supply is still very strong and demand is still very weak.

In the other news... U.S. ‘Problem’ Banks Rise to 305, Highest Since 1994, FDIC Says

http://www.bloomberg.com/apps/news?pid=20601087&sid=a6PE4NB3ns5k&refer=home

and don't even get me started on how ridiculous FHA loans are - 3% down with good credit and income coverage. they are now approaching what - 1/3 of all home purchases or something? let's fix the credit bubble by offering gov't backed loans that countrywide wouldn't offer at the height of the bubble!

If they thought foreclosures we're flooding the market then wait until what happens over the next few months now that the foreclosure moratorium is over

and this is something NYC has to look forward to, i think, further to the notion that only the lowly are selling:

http://www.calculatedriskblog.com/2009/05/dearth-of-move-up-buyers.html

special_k, burst one bubble, blow another.

Home Resales, Inventories Rise
Existing-home sales climbed 2.9% in April as buyers took advantage of foreclosures, but inventories moved higher putting further pressure on prices.

http://online.wsj.com/article/SB124343285337858637.html#mod=testMod

and they were down 3.5% YoY, which is the number to look at as we were already in the recession then.

a good article talking about how FHA loans are increasing as % of total:

http://www.fhaloanpros.com/2009/01/fha-loan-volume-soars-in-tough-market/

FHA is the new subprime, and surprise surprise FHA loan defaults are skyrocketing..

http://www.businessweek.com/magazine/content/08_48/b4110036448352.htm

Special_K,
I've never owned a place before and pretty much rented in LIC the past 6 years. Prior to that, i've lived in SOHO most of my life. I've always wanted to own but prices in LIC started getting out of hand from 2004-2008. With the recent downturn (3 weeks back), my wife and i finally made the plunge and entered into contract to purchase a place. I know weakness will continue for quite some time, but buying right now isn't too far from my current rent. The stars 'seem' to be align for us and financially it makes sense.

mortgage delinquencies up 43% YoY.

http://www.housingwire.com/2009/05/27/delinquencies-up-43-from-2008/

ericho, congrats on the purchase. enjoy it.

special_k, and who will pay for the FHA defaults? would it be jpm, or citi, or bofa?

ericho, congrats on the purchase. i rent but have been likewise looking off and on for a place to buy for the past year or so. though i slowed down the search once the market started falling off a cliff. anyways, best of luck on closing and hope you enjoy your new pad.

aboutready, my understanding is that it will be you and me (and i'm assuming that you are a taxpayer)

congrats on the buy ericho, but please dont start comparing month to month when this market is seasonal! You will start to sound like a broker.

year over year, existing home sales fell 3.5% from April 2008, and that is with a surge in foreclosure sales and short sales

special_k, yes indeedy, i am a taxpayer and becoming more of one by the day it seems.

hopin for jimmy choo. dont wanna end up in payless

AR & Special_K,
Thanks, the buying process/negotiation started in the fall of 2008. The building we were interested refused to budge when we first started negotiation. Of course we walked after the first tried...2 months later they chopped a bit more, but we stand pat...did it again 2 months later and again and again...until the developer finally came down to our price per square footage. It took a while, but it worked out. Prices can go down another 10-30%, but of course no one will know how long the wait will be and even if prices did go down another 10-30%, rates could be substantially higher as you have pointed out. The new place is 1,500 square feet and more than enough for a family of 4. Since i'm in the hyper-inflation camp and in no way looking to flip this place, having my housing cost fix for the next few decades is very important to me. Again, it all boils down to one's own finances.

UD, just looking at the stats will tell you, since foreclosures and short sales make up such a large percentage of total sales, that what's moving is probably priced 30% below last year. I look at Miami Beach where foreclosures and short sales OFFERING prices are 30% below sales by individual owners, and they're STILL not moving.

We have plenty of downward pressure coming, especially since banks are moving away from the bonus model. As soon as they do they'll figure out that they don't have to pay their top talent quite so much to hang around, as they won't be able to take so many short-term risks.

The 30% decline in Manhattan thus far is nice, but not enough incentive to make me buy. Minimum another 30% to go.

If your in the hyper inflation camp, the first round of inflation is NOT going to be the good kind. Imagine, higher food, energy, commodoties, health care, metals, higher rates, eating away at profit margins and squeezing consumer wallets....this is the kind of inflation that hampers growth!

Its NOT the kind of inflation that results from an overheating economy where wages and asset prices are rising. I understand the logic, but I think its wrong. You would be better protected in TIPS, metals to start with to hedge against this bout of inflation, if it comes.

Why be in TIPS when the dollar will also collapse? How does that protect you against a currency collapse? I say best way is owning some gold bars and maybe owning a home with fix rates?

UD, agreed. No asset price and wage increases. To the contrary, wage deflation is currently widespread, on top of unemployment.

ericho, this is not your typical recession. we are having households disappear. in a Wells Fargo survey recently 1/3rd of all respondents reported having an additional family member or friend enter their household over the past year. rents are declining as well.

TIPS, you mean inflation protected treasuries? Capital Preservation.

Lets check in on owning a home with fixed rates. So you buy a home at 1M, down from 1.2M at peak, when rates are at 5.5% because you want to hedge against hyperinflation. Now, corporations profit margins get squeezed, stocks get hit on unintended consequences, taxes go up big time, consumers get squeezed and Im sure many cant pay maint, and rates surge to 8-9%.

What do you think your home is worth now? How did your hedge work? Im just talking here if hyperinflation hits. How do you define inflation anyway?

what makes you so sure asset prices won't increase? If there is significant inflation, the cost of building that asset skyrockets and the increase will get passed on to the consumer by the builders.

FYI - I am not so much in the HYPER-inflation camp, but I do see a bout of inflation as an unintended consequence from actions to stem this crisis. The inflation will show up in food, energy, metals, health care, and rates will rise. Once we adjust to that, then we can talk sustainable growth...in meantime, consumer needs to delever, debts need to be written down, loans need to be marked down, bad models need to go into bankruptcy and get restructured, corporate assets will be sold to fix balance sheets, and banks need to come clean on their on and off balance sheet holdings and mirky accounting tricks and stop holding toxic assets at high marks or in off balance sheet conduits. Debt service needs to come down or incomes need to rise. Do you see rising incomes? credit quality needs to start rising, instead of deteriorating. Why would banks lend to a deteriorating consumer?

This process will take time to purge excess, and the fed is trying to inflate us out of a deflationary episode. Ive said this over and over for a long time now. My stance hasnt changed, but yes, its nice to have systemic risk off the table.

"the cost of building that asset skyrockets and the increase will get passed on to the consumer by the builders. "

Its my view that YES the costs will rise but NO they will be unable to pass on that increase to a consumer that is deeply in debt, looking for work, and saw a huge hit to portfolios and home equity. Thats my view based on what I see. You can disagree if you like.

alpine, who's building what? we've got quite the supply overhang.

the wages aren't there, and they won't be.

and yes I think there will be a GREAT time to buy assets, and it likely has started recently but will last a year or two more. Im way less bearish now than 18 months ago with S&P at 1500, bank stocks at high levels, asset prices at much higher levels. The process started.

But I think the inflation we will see will be the bad kind, not the kind that comes through in wages and asset prices. I dont understand why this is so hard to understand?

apparently we should ignore the excess capacity and overinvestment/overdevelopment that occurred with the credit and housing boom...never happened...look away aboutready! nothing to see here

you got to start over, clean, about the building boom about to occur with hyperinflation that makes asset prices rise because it cost more money to build in a very healthy market and a very healthy economy

It depends on how they measure inflation. If they stop measuring home prices (41% of the index) as owners' equivalent rent, and instead measure rents and home asset prices, we are in for a serious bout of deflation.

Part of the problem recently is how inflation is measured - historically, owners' equivalent rent = owners' carrying costs, so there was no problem. This is the first time in history, however, that owners' equivalent rents did not equal owners' carrying costs, and there was no risk adjustment for ARM's, etc. Which meant that the "low inflation" period we just left was actually a period of very high inflation, and the opposite is about to be true.

There's no doubt in my mind the mountain of money being created on a daily basis by all governments around the world will cause everything to rise...housing included. I noted a few weeks back that housing prices in Hong Kong recently on a per square foot basis just surged into new highs. This is with record unemployment, a collapse in credit/debt and an unstable economy. What gives?

excess money artificially created chasing insufficient real assets. again.

"excess money artificially created chasing insufficient real assets. again."
So why can't it happen here? Commodity prices are pointing towards that route now...

it is happening here. the bond and equity markets. if it continues you will see an eruption that will look like a mega-boil being lanced compared to the whitehead we have been picking at so far.

lesson number 1: bubbles are bad, except for a very few people.

"excess money artificially created chasing insufficient real assets. again."

Strange how all that artificially created excess money has led to increased housing inventories and lower prices.

AR - monetarism is dead with all but mmafia. Inflation is far more complex than just a lot of money. Velocity of money matters, price of money matters, demand for goods matters. Mostly inflation is caused by wages increasing faster than productivity, which is not happening.

"Mostly inflation is caused by wages increasing faster than productivity, which is not happening."

that PLUS a sustainable expansion of credit, which in fact the opposite is happening....I would add that to the inflation equation

steve, i don't think you read my post correctly. i wasn't talking about inflation. i was talking about why certain asset classes are overbought. this thread is going in so many directions.

i'm firmly with UD here. there are massive deflationary pressures, which are being countered by measures that will most likely cause inflation down the road, but not wage and home price inflation.

sorry, AR - I guess I misread.

UD, expansion of credit is an expansion of the money supply both in nominal terms and in velocity terms.

steve, do you think the current expansion of credit is really expansion, or just replacement of credit? i think it's keeping the machine going, but not much more than that.

AR, Urban - not quite sure what you guys mean by good and bad inflation, or asset inflation vs. wage inflation vs. consumption inflation. basically, there is just inflation. certainly some components of CPI and PPI will go up more than others. btw, it will be exceedingly difficult to have overall inflation without asset inflation and/or wage inflation. where is all the demand going to come from that will enable companies to raise prices on goods if people are not more wealthy and/or make more? i believe what you may be referring to is real wage growth and real house price appreciation. here, we could make the argument that a high overall level of inflation caused by massive printing/injections of liquidity could result in stagnant to declining real wages and/or asset prices. furthermore, it has been proven throughout history that inflation greater than the fed target of 2-3% inhibits real growth and much above that level, it becomes a destabilizing force in the economy.

personally, that's where i think we are headed. hyperinflation is just not in the cards for us. it may just be semantics, but that generally refers to something like 100% inflation in a few years (or more).

ok, so base money supply is surging and velocity has plunged - I guess that equals deflation. So I guess that means credit is contracting because all of these are occurring at same time since the crisis started

so credit contraction is an expansion of money supply but a decline in velocity?

ud - to me credit contraction is just that, harder to get credit than before. that would then be a decrease in the money supply, or M1 if banks are just not lending out. however, we have had a massive liquidity injection which has increased money supply. since velocity = GDP/money supply, an injection into money supply should decrease velocity, assuming no growth in gdp. i'd say that phenomenon is more a product of gov't injection that a symptom of credit contraction.

UD, what?

M2 is surging, but velocity has stalled. Any increase in credit is an increase in the money supply. There is, however, a difference between contingent credit - commitments, or availability of money - and drawdowns.

Credit is available, just the price is very high and the qualifications are more exigent. How that affects the money supply depends on what measure you use.

just trying to figure this out...here is M1 Multiplier - so velocity plunged:

http://research.stlouisfed.org/fred2/series/MULT

so fed has to pump up base money supply:

http://research.stlouisfed.org/fred2/graph/?s[1][id]=AMBNS

So, base money supply is surging, and velocity has plunged, no? The multiplier effect of money vanished it seems as our fractional reserve banking system went into paralysis and is now in IR. Credit contracts, equity lines are cut, credit lines are cut, lending slows, etc..the banks go into hibernation? All this while base money surged..

If you say, an increase in credit is an increase in money supply, can you also say an increase in money supply can mean an increase in credit? If credit contracts, it should be a decrease in money supply correct? Especially as debts are written down/off and defaulted on?

If everybody paid back all their debts, how much money would there be in the system?

The price of credit is actually way way down right now, and the stricter qualifications have come as natural market forces whip these banks into oblivion. It was a fight for survival and banks cutback. Naturally. We are yet to see full force of regulation to further tighten lending practices, but IM sure its coming. In this manner, I think free markets actually did some good - it made exotic loan products go extinct, leaving those holding the bag vulnerable. It eliminated free money, and no money down, and no income, etc.., and tightened underwriting standards big time.

An increase in money supply may or may not lead to an increase in credit. If the money supply is held as bank reserves (as is happening) then the money isn't being lent out.

If everyone paid back all their debts it would not be a decrease in the money supply. The money supply is a measure of deposits (credits), not loans (debits). To clarify what I said above, an increase in credit does increase the money supply in that loans are made against deposits - the money has to come from somewhere. That's why the distinction between available credit and actual credit is important.

There are 2 ways to ration a scarce good: by price, or by non-price barriers. The latter is what brought down Jimmy Carter, who tried to reduce inflation by preventing banks from lending. It didn't matter at what price - banks simply were not allowed to lend.

The instant crisis was precipitated by a lack of confidence, causing banks NOT to lend because they were afraid to get caught standing when the music stopped.

digesting it...thx

by the way Stevejhx, long running debate..how do you feel about gold these days?

UD, I always feel about gold the way I feel about gold and will never change: there is no intrinsic demand for gold, it could go up to $10,000 a troy ounce and I won't be disappointed that I missed the run-up. I don't understand it - it's a psychological addiction.

The day they find a good industrial use for the stuff, beyond jewelry and fillings and some very rare electronic applications that the much cheaper copper doesn't work for, is the day I'll buy. Elemental gold is inert.

And to clarify further what I said above, loans are part of the "velocity" part of the money supply. Banks take your deposits and lend them out for someone else to spend them. Someone else spends that money causing someone else to spend money. If it stops anywhere in that chain, velocity falls.

right, which it has big time, relatively speaking

Right - and I'm a prime example. When the crisis hit I took out a lot of cheap credit card loans (on the order of 3% per annum) just in case things got very bad or they cut my credit limits. They didn't and they didn't, but in any case I never spent the money, I just parked it in my checking account. Therefore there was no velocity even though the government gave all sorts of money to the credit card companies.

Now as things improve I'm paying the balances back. No net contribution to the economy, but I was prepared to weather just about any storm. And I improved my credit score by using my balances and paying them back.

Go figure.

Yeah, the gold standard caused a whole host of other problems in past financial criseses, going all the way back to Roman days at least. People have selective memory on that.

specialk, i've been out and i haven't read all of this. but i think there is selective credit expansion, and selective credit restriction. it has gotten a whole lot easier for banks to borrow, and a whole lot harder for consumers (other than conforming mortgages). which leads to liquidity in the banks, but not in the economy as a whole. i just read some of the replies. i'm agreeing with steve here.

i never said that there would be good inflation or bad inflation. but price inflation that occurs while wages are deflating is particularly painful.

Jason, the gold standard has to be abandoned any time there is a need to expand the money supply, which under it is fixed. Viz. the Civil War, the Spanish-American War, WWI, the Depression, WWII, the stagflation of the 70's. It is an inflexible "tool" that leads to great periods of inflation (when it is abandoned) followed by great periods of deflation (when it is reinstituted). It's just plain dumb. The money supply can be managed in other ways.

w67thstreet..
Again, another useless post. You offer nada to this community beside profanity and name calling.

ericho, got to disagree with you on this one. but maybe that's because he's invoking the great pimpco to support my position. hint: one of the biggies came out supporting the hyperinflation theme today, although i'm pretty sure he did so for his own agenda. go find it.

Lending affects the money supply because one bank's loan of X is another bank's deposit of X. The second bank can then loan out 5X more based on the new deposit. A third bank deposits the 5X and loans out 25X.
See "Money as Debt" for a long but thorough explanation.
http://www.youtube.com/watch?v=vVkFb26u9g8

What's the big deal? Isn't this what i've been saying for 2 weeks. Now w67thstreet is all over this? Isn't he suppose to start name calling about about pimpco. lol..this is becoming comical.

yes but clearly we saw lending decline big time and yet money supply surged? how does that add up, especially with velocity plunging?

a: the fed

Mish seems to disagree with you guys about prperty values not rising during hyper-inflation:

However, let's assume for a moment that hyperinflation is going to happen. Where then could one get the most bangs for their buck to take advantage? The answer to that question is in real estate, where one can buy on 5% down. Nowhere else can one easily get such leverage.

Note that there has never been hyperinflation in history where real property declined in value. Therefore, if Schiff really believes in hyperinflation, he ought to be suggesting that his clients buy houses.

http://globaleconomicanalysis.blogspot.com/2009/01/peter-schiff-was-wrong.html

Anyone that thinks in a hyperinflation environment that housing prices will not go up need to stick their head into a meat grinder. Again...

No one have rebuffed my claims from last week. Even Roubini is seeing it now...yes, the idiot me can be ahead of the great professor!!!

1) Gold only 5% from the all time highs
2) S&P 40% off the recent lows
3) Economic sensitive commodities (Silver, Copper, oil, etc.) are rocketing. Agriculture ETF (DBA) just broke out of a 8 month base. All those folks in Asia must be eating consuming all that food.
4) Bond yields are heading north without skipping a bit. *new highs today*
4.5) Junk bonds have rallied over 1,500 basis point from their lows!!!!! OMG!
5) Home sales number are up
6) Retail stocks are outperforming the general market
7) Consumer confidence logged it's biggest month over month increase in a decade
8) Manufacturing numbers came in well above expectations
9) Distressed banks and financial companies around the world are raising new capitals without any problems.
10) Banks like Wells Fargo are recording record profits

NO NO NO!
This can't be!!! Housing is collapsing! Deflation deflation deflation! <-- narrow minded idiots on these boards.

One thing left out of this equation: is hyperinflation going to jump out of the bushes TOMORROW? What is going to happen between now and when hyperinflation hits? If the answer is that between now and then housing prices go down 70% because of other factors (like the one's which will cause the hyperinflation to begin with), buying now is still not the right answer even if hyperinflation is a certainty.

actually, buying now is the best thing to do because if hyperinflation comes, interest rates will be much higher than they are now.

"One thing left out of this equation: is hyperinflation going to jump out of the bushes TOMORROW? What is going to happen between now and when hyperinflation hits? If the answer is that between now and then housing prices go down 70% because of other factors (like the one's which will cause the hyperinflation to begin with), buying now is still not the right answer even if hyperinflation is a certainty."

That is the million dollar question, and that's why we need to be on our toes. Stop looking down the gun barrel (bearish views) and take a look around. No one can pick a bottom that's why it's important to work with price points. Your finance is your best guide. And the 10 items i listed above are ALL HAPPENING AT THE SAME TIMEFRAME!!!

"actually, buying now is the best thing to do because if hyperinflation comes, interest rates will be much higher than they are now."

What happened when rates were at the decade lows back in 2004 and marched up. Did housing prices leveled off? BAH BAH BAH B I N G O! Nope, the red hot economy took it right up with it.

Are my assumptions off based? Of cause not, why? Because it happened not too long ago.
If anyone thinks this government will halt the creation of money anything soon, please check into the closet nut house. Helicopter Ben is here to stay.....

Last note before i need to head out to 67th street to feed the crack whores.

The only way that mountain of debt that's eating this nation alive is by inflation....and lot's of it.

"actually, buying now is the best thing to do because if hyperinflation comes, interest rates will be much higher than they are now."

Oh, so buying an apartment for $1,000,000 and taking out an $800,000 mortgage at 5% is a good deal rather than waiting till the apartment comes down to $400,000 and taking a $320,000 mortgage at 10% (which you can refinance later when rates come down)? GMAFB. Buying at very high prices is never a good idea. You want to argue that they won't come down much, fine, but the idea that you should buy now even if they are going down substantially because when they go back up due to hyperinflation the rates will also be high is ludicrous.

i really cant believe those that see real estate flying with rates surging due to hyperinflation, after te bust we saw in credit and housing...amazing

to believe that the govt is going to deliver us from this economic quagmire is ridiculous. If govt could really do that, there would never be any recessions. If anything, government intervention makes things worse. Bernanke and Paulson started us on a bad road and now we're all in with weak hand hopin to bluff everyone out

Basically the low end is moving due to a tsunami of foreclosures. Anything above 750k is nor moving (a 40 month inventory). If one were to select a market that is the most illiquid and overpriced right now, a good argument could be made for the Hamptons. There are a ridiculous number of homes for sale in the 6 mil and up range...who is the buyer for that product?

Someone really needs to understand the cause and effect of hyperinflation before one spouts off economic nonsense as if it were Gospel.

Hyperinflation happens when a central bank floods a market with money. To do that, it merely deposits money into the accounts of banks. That is NOT what the Fed is currently doing. Currently, the Fed is accepting collateral for the money it is "printing," as some are calling it. That is, it is monetizing existing assets and lending against them.

That means that every credit on the Fed's balance sheet (loans) is offset by a debit (collateral). The money supply is increased by the increased cash amounts on banks' balance sheets. That should be (but currently is not) followed by an increase in lending by banks (velocity).

Were the Fed merely to print money and deposit it without accepting collateral, that would stoke hyperinflation because money would no longer be scarce. Money remains scarce now as all the Fed is doing it monetizing assets.

Hyperinflation, were it to occur, would not be good for house prices or anything else; under hyperinflation what changes is the value of money, not the value of goods and services sold. People consume now, not later, because it will cost significantly more in yesterday's money to buy tomorrow's goods. Moreover, IN HYPERINFLATION BANKS DO NOT LEND. There are no credit cards, no mortgage loans, no lay-away, no nothing, because lenders are unwilling to lend in today's money to be paid back in tomorrow's significantly less valuable money.

I could go on, but I think some people who post here really need to experience hyperinflation first-hand, and then to take Econ 101.

The Fed is buying newly issued treasuries, if that isn't printing money, I don't know what is. In the next few months the Fed will be the biggest holder of U.S. treasuries, more than China.

"if that isn't printing money, I don't know what is"

Obviously you don't. Treasury bonds are debt; debt is not part of the money supply.

Obviously you don't. Treasury bonds are debt; debt is not part of the money supply.

how does the fed pay for the bonds?? they are putting more money into the system. fed buys bonds to add liquidity.

"Obviously you don't. Treasury bonds are debt; debt is not part of the money supply."

Issuance of bonds is not printing money. The fed creating more currency to buy those bonds is.

"Issuance of bonds is not printing money. The fed creating more currency to buy those bonds is."

Not really. See above. The Fed is monetizing an asset that it can turn around and sell to someone else. Strictly speaking, were it to be "printing money," it wouldn't have to buy bonds. It would just give the printed money to the Treasury without the obligation on the part of the Fed to pay it back.

That is, without the collateral.

It's a HUGE difference. Yes the money supply is increased, but the effect is quite different.

"on the part of the Fed to pay it back" = "on the part of the TREASURY to pay it back"

Ooops!

"Not really. See above. The Fed is monetizing an asset that it can turn around and sell to someone else. Strictly speaking, were it to be "printing money," it wouldn't have to buy bonds. It would just give the printed money to the Treasury without the obligation on the part of the Fed to pay it back. "

There is a transitive effect going on here. Gov't wants to spend $100bn to inject into the economy through all its stimulus programs, but assume it doesn't have the tax receipts. So it borrows the money. Let's assume it borrows all that from the Fed. Where does the Fed get that money? It just creates it out of thin air, i.e. "prints money." The money the Fed creates is backed by the US gov't only, there are no hard assets behind it. Thus, the $100bn injected into our economy is simply created by the Fed from nothing.

Sp_K, that's partially correct but there is a huge difference between monetizing an asset and simply depositing money into an account without an offsetting entry. The latter creates hyperinflation; the former does not.

Imagine if I went to an ATM, pressed the "deposit" button, "deposited" $100 into my account but put nothing in the machine.

Then imagine if I went to an ATM, pressed the "deposit" button, and deposited a $100 check, or $100 worth of soybeans or gold or anything else.

In both cases my account balance would increase by $100. Yet the transactions have entirely different economic effects.

And in the second case, it doesn't even matter if the person who gave me the assets I deposit actually has them - the promise to pay is enough.

Indeed, I could have borrowed the soybeans and deposited them. It doesn't matter. What matters is that there is an offsetting entry.