General economic questions as I understand
US has extended unlimited line of credit (loans) to ECB (at low interest)
ECB loans money to (at low interest) to European banks
European banks told "Use the money to buy government bonds to hold down the yields on bonds"
European banks sell the bonds back to the ECB on the secondary market at reduced interest
European banks profit.
European governments use this money from new bond sales to pay existing debt obligations and increase their Debt to GDP ratios even higher.
1) Isnt the entire of europe going to end up like Greece with astronomical debt to GDP ratios and ridiculous austerity?
2) Is the US likely to remove its line of credit because it must surely understand that it wont get any of this money lent to the ECB back again?
3) In the short term would this continued printing/lending of money lead to a higher Australian dollar as we are the only ones not debasing our currency?
4) In the medium term Australian exports would be significantly reduced due to the higher dollar and therefore Australian GDP would reduce?
5) In the medium term wouldnt the RBA notice this reduction in GDP and hence reduce interest rates to devalue our own currency?
6) In the long term wouldnt this lead to significant asset inflation (except perhaps australian property which could stagnate to previously sustainable price/affordability ratios) due to the reduced value of the dollar?
7) If the central banks of the world understand that any deflationary shock or liquidity crisis could unravel the whole system would they not continue to debase their currency?
8) Why should I not buy gold?
9) So the global debt levels have reached unserviceable levels and and such no amount of austerity (which only hampers GDP/Tax incomes) or stimulus packages (which cannot increase GDP/Tax incomes enough) could pay the required levels of debt payments (not paying down the principal) so we will all race to inflate our currencies in order to make the debt more serviceable?
10) In order to stay in line with the RBAs dual mandate (mantaining GDP growth while controlling inflation), the RBA will revise it indicators for inflation to ensure that their definition of inflation doesnt increase while they debase the currency