A few Macro Economics Questions

[piezoe]

create money at will by having banks lend

this kind of money, "credit money", is what some economists call "inside money". It is not permanent. It disappears when a loan is paid off. It is not part of M1, and the Fed has only very weak influence over it, as it is demand controlled... The primary money creation step occurs when the Fed covers net overdrafts in the Treasury's account at the Fed.

there's no problem with them being majority owner of the top 10 stocks in the S&P

The U.S. Fed does not buy equities. When as part of the rescue package for GM, for example, in which the U.S. Treasury acquired shares in GM, which they later sold at a loss*, the Fed acted as an intermediary to facilitate the rescue but quickly transferred GM shares involved to the Treasury. Recently, I believe, the Fed was authorized to accept equities as collateral, but it seems little use was made of that facility.
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*The U.S. ROI on the TARP program was < 2%. But positive none the less.

 

[gaussian]

this kind of money, "credit money", is what some economists call "inside money". It is not permanent. It disappears when a loan is paid off. It is not part of M1, and the Fed has only very weak influence over it, as it is demand controlled... The primary money creation step occurs when the Fed covers net overdrafts in the Treasury's account at the Fed.

The U.S. Fed does not buy equities. When as part of the rescue package for GM, for example, in which the U.S. Treasury bought shares in GM, which they later sold at a loss*, the Fed acted as an intermediary to facilitate the rescue but quickly transferred GM shares to the Treasury. Recently, I believe, the Fed was authorized to accept equities as collateral, but it seems little use was made of that facility.
_________________
*The U.S. ROI on the TARP program was < 2%. But positive none the less.

https://www.marketwatch.com/story/the-fed-has-been-buying-etfs-what-does-it-mean-11600704182

I know it's not equities but corporate junk may as well carry the same risk. Since their print forever and ignore inflation policy has come into effect this has become the inevitable outcome. I would not be surprised if they entered the equities market in earnest should their levers stop working even more than they already are.

One is left to wonder how close to out of control inflation we actually are.

 

[piezoe]

https://www.marketwatch.com/story/the-fed-has-been-buying-etfs-what-does-it-mean-11600704182

I know it's not equities but corporate junk may as well carry the same risk. Since their print forever and ignore inflation policy has come into effect this has become the inevitable outcome. I would not be surprised if they entered the equities market in earnest should their levers stop working even more than they already are.

One is left to wonder how close to out of control inflation we actually are.

"Risk" doesn't mean the same to the Fed as it does to you or me. That is not to say the word "risk" does not exist for the Fed. At the moment the Fed, meaning Fed economists, seem to think that inflation is transitory, menaing they don't think it is long term. They wouldn't be so naive as to think prices are transitory.

 

[longandshort]

https://www.marketwatch.com/story/the-fed-has-been-buying-etfs-what-does-it-mean-11600704182

I know it's not equities but corporate junk may as well carry the same risk. Since their print forever and ignore inflation policy has come into effect this has become the inevitable outcome. I would not be surprised if they entered the equities market in earnest should their levers stop working even more than they already are.

One is left to wonder how close to out of control inflation we actually are.

Fed printing doesn't directly enter the economy except when it's used to buy assets from commercial or consumer banks (as lender of last resort), which rarely happens.

Most of the Fed "money printing" is in reserves. The Fed creates reserves and uses them to "soak up" treasuries from Dealers, and pays interest on excess reserves to limit their flow into the real economy.

If the Fed wants to drain reserves from the system, it just needs to create a net treasury issuance.

• For example, if the Fed is buying 120B per month in Treasuries, and net issuance is below 120B/mo., then the Fed is adding reserves (easing) to the system. If Issuance > Fed purchasing, then reserves are being drained (tightening). Some months have structural issues -- for example, for the past few months T bill issuance has been low as the US Treasury is paying down debt as we near the debt ceiling.

 

[piezoe]

Not going to happen.

For those who are made uneasy by this cute little video, try thinking instead of each crank of the handle retiring some portion of the "national debt" -- assuming the money cranked out is being used to buy Treasury securities -- and you'll feel better. Of course what is really happening is swapping one kind of government liability for another, non-interest paying government liability, while increasing private sector liquidity.