I'm really curious to see what happens at the end of QE2 in June. I don't see how the Fed can stop printing at this point (although they should). If there was ever a time for the Fed to secretly start buying debt, the end of QE2 would be it. What I'm wondering is how hard would that be for the Fed to do?
I think in reality it's more likely that they'll come up with some plan to extend QE2 with no end date. Then every month it will be like the the way they handle the 0% interest rate, "Because of continued weakness in the economy we will continue QE2 for another month."
What does it matter? The Fed balance sheet is known to its benefactors at a minimum. So there really is no secret here. And even if there is, it will be months to years before the effects of the policy come to light so by then no one will care.
I think it matters if you want to know how much time is left before the currency collapses. Let's assume it's really difficult for the Fed to secretly monetize debt. If QE2 ends and private investors start buying debt at the current low rates, then it will take longer than I expected for the collapse. If QE2 ends and rates spike way up (and then the Fed announces QE3) then I'll know that we are approaching the end game.
Ultimately you are right. The end result will be the same whether they monetize in secret or not. It'll just take longer for it to happen.
Isn't that perverse? Instead of taking care of our lives we are forced to play Musical Chairs with Bernanke as DJ. And I really don't like that tune he puts on.
One thing I realized while I was trying to figure out this whole deflation-inflation mess was that no one really knows how much money is out there. It's hard enough to try to figure out what's up with the money supply on a gold standard. Now add to that the fact that we have a fiat currency AND we are the world's reserve currency and you can forget it. All I know is that there are extremely powerful incentives for the government to inflate and I'm convinced that is what's going to happen.
http://research.stlouisfed.org/aggreg/
I've been to that site many times. It's one of the reasons I'm convinced no one really knows how much money is out there. :)
The M2 money stock is how much money is out there.
But M2 contains credit which can act differently than cash. M0 is the number I prefer when trying to estimate how much the dollar is losing value.
Something else occured to me. At first I was thinking that the fed would secretly monetize debt something like this: Somebody like Goldman Sachs buys treasuries and then the fed secretly buys them at a higher price a week later from Goldman but doesn't put them on it's balance sheet. But now I'm thinking a more likely scenario is that the fed entices Goldman to buy treasuries by offering a cash bonus. So they would just print money and give it to Goldman in return for Goldman buying treasuries. But Goldman would keep the treasuries. That seems like it would have less risk to the fed and also be cheaper. Would anyone go to jail if they got caught doing that?