Right, so why is 10$ trillion the number where this all happens? How did you arrive at that number?
Anyone want to talk about inflation?
- Thread starter kmiklas
- Start date
Right, so why is 10$ trillion the number where this all happens? How did you arrive at that number?
Up $100 today. You just gotta own gold here with this endless QE and limitless stimulus. IMO, stocks will also explode when this virus fear settles in. The next crisis for the fed will be runaway inflation.
Now, that's hilarious!
Probably not in any significantly damaging way.
The swelling of reserve accounts via QE is done to push rates down and to encourage banks to loan at low interest rates, since banks prefer not to hold excess reserves. This may not work very well, however, if there is insufficient demand for credit. In the present instance, I would think demand for credit will increase. I suppose that's what Powell & Co. are thinking as well.
It is important to realize that this is a reversible process and bank reserve account balances are decreased when the fed sells bonds. As well, there is a ready alternative to the selling of bonds, though it is politically unpalatable: raising taxes. Raising taxes also reduces reserve balances.
It seems the economist, Abba Lerner, is finally being given his due. Lerner wrote in 1943* --this was before Bretton Woods --
The central idea is that government fiscal policy, its spending and taxing, its borrowing and repayment of loans, its issue of new money, and its withdrawal of money, shall all be undertaken with an eye only to the results of these actions on the economy and not to any established traditional doctrine about what is sound or unsound.
Thank you Mr. Lerner. Finally, it would seem, in our post Greenspanian world, the wisdom of your words is sinking in.
__________
*Lerner, Abba P. in "Functional Finance and the Federal Debt," Social Research 10 Pg. 39.
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Inflation tends to compress P/E
And a lot depends on how they are going to manage it. If interest rates stay 0 with CPI 5% we sure likely get CPI 10% and then proceed straight to hyperinflation and then you best bet to get huge mortgage
They can think it all they want, but as I've been telling you - Piezoe - for years, you can't force people to borrow. If they, or their businesses, are already over levered from years of cheap money, they're not going to borrow more. If someone is already paying ALL of their discretionary income towards debt service, how do you get them to borrow more simply because you lowered rates further?
Oh? And when was the last time the Fed sold bonds for anything other than a cursory adjustment? Put up a chart of the Fed's balance sheet, wouldja.
@morganist, I posted this in a separate thread waiting for your counsel. Of course it is tongue in cheek but what is wrong and what about UBI (universal base income):
Glad I found you here.Here is my proposal to the Fed and to President Trump:
1. The Fed buys up all of the US Government debts.
2. The USG then borrows with negative interest rate bonds, like Germany, Japan....
3. Every year after, USG gets paid from the negative interest rate bonds to fund federal expenditures....
4. Do the math, if USG borrows enough, USG can eliminate all income taxes, corporate taxes. How nice.
Problem solved. Trump will get reelected for 4 more years.
@morganist where are you?
The problem above all is, that a country can't be run "profitable" it will always end up in debt. As long as we have a free market with no protection for wages or a big ressource to export (Norway, S. Arabia) there is no exception to it. So the debt is paid with increasing wages, but wages stopped increasing for the sake of free markets. The whole free market thing in itself can not work if you think it through.
First, I wholeheartedly agree with you, you can't force people to borrow. You no doubt did not see my several posts in which I have commented on how generally ineffective a tool incremental lowering the funds rate is, and why. And raising rates is similarly ineffective unless you raise them a great deal -- a'la Volcker. Demand is something poorly linked to rates. We are in complete agreement. This current crisis is different in its origin and nature. I think this may be the exception to the rule. There may be an up tic in the demand for credit to tide businesses over the shut down period, especially if loans can be made at virtually zero interest and cost, and I think they probably will be. As I write this, however, it looks like the Senate is about to pass a rescue package that might reduce the demand for negligible-interest loans.
The Fed does indeed sell bonds beyond routine adjustment to aggregate reserve balance. In fact, it became a net seller quite recently when it was pushing the funds rate up while reducing its inventory of bonds. Also, and in general, it would be a net seller if inflation is running higher than desired and it wants to reduce the amount of liquid money in the economy and replace it with Treasury liability -- this has the effect of forcing the funds rate up.
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