Quote from achilles28:
The FED buys Treasuries with printed money. That's monetization. FED funds dictate rates, but that metric is enforced by open market operations, many of which include the purchase (or sale) of US Treasuries = monetization. To call that relationship 'nonsense' is ignorant. Bernacke admitted targeting long-dated Treasuries to keep rates low. The MBS program has a similar effect by bidding up demand for long-dated fixed-income products. Why aren't you aware of this?
Sorry, been busy last week...
The Fed engaged in a QE program during the crisis, as did the majority of Western central banks (BoE, SNB, ECB and BoJ). Whether this constitutes monetization of govt debt or a necessary response to a financial crisis is a matter of opinion. Your opinion is exactly as good as mine. Permanent OMOs during the time of crisis did include outright purchases of securities, but this is not normal and it's important to make that distinction. Normal OMOs are repo operations, rather than outright purchases/sales.
I am aware of the goal and the effects of the asset purchase programs, across the world. What I said is that your claim that the short rate is the
sole determinant of long-term yields is nonsense.
America is the next Greece. And you're questioning if Government could have done any worse? Probably not!
All I can say is that the mkt seems to be in emphatic disagreement with you. Myself, I see no reason to believe that the US has to end up like Greece, although I can't exclude the possibility. As to how badly the govt has done, I simply don't see what hard evidence you can provide here and now to corroborate your accusation. Personally, I don't think the game is over yet, which behooves me to offer the govt the benefit of the doubt.
True, there is no easy answer to the vexing problem of monetary policy. However, it should be obvious to anyone with half a nut rolling around, the current system does not work. It's about to implode. Hard money is viable and legal. Instead of an inflationary system, it would be deflationary. Government can then only spend what they earn (revenue). That's viable and sustainable. And I'm not a gold bug. Instead of hard money, we could fix interest rates (for example, ~6%), or increase money supply proportionate to GDP etc. At the very least, we should legalize competing currencies and let the free market decide alternatives.
Well, I like to think I got a couple of nuts rolling arnd and nothing is obvious to me, that's for sure. I don't necessarily disagree with you regarding your ideas, but what does that have to do with the Fed? The solutions you propose, just like the issues they are designed to address, are all political matters. I have absolutely no disagreement with the need to reform politics, in the US and other Western countries.
I think you misunderstood. I explained how the mechanism of debasement works. Because you implied whether debasement exists.
The thrust I made was most Americans don't benefit immediately from Government spending/programs, via trickle-down or direct participation in it's construction. Those who do spend money/receive it first, drive up CPI, and agents who benefit later (if at all) get stuck with the bill (~static wages + increased CPI). That's how debasement is negative.
I think we got sidetracked here. The debate was about paying interest on money FED prints and loans to Government. Not why debasement is negative. If you recall, I mentioned negative debasement would exist regardless if the FED prints interest free money, or not. So the point is rather moot.
I still don't see your debasement point, but I agree, let's not get distracted.
Yes, outright Treasury purchase via open market operations, which is done through money creation. Or, as you like, quantitative easing.
Excellent, now we're clear. Since QE is something that's been done by the Fed as a one-off, in fixed quantities, shall we conclude that the "Fed printing money with interest" is one of the exigencies of the crisis, i.e. far from normal? Let's define it as a side-effect of doing QE, in a sense that it's hard to imagine how to implement QE without mechanically causing the appearance of "printing money with interest".
That's naive. Americans vote largely on the economy. Low rates and congressional pork buoy the national and local economy. That's financed by deficit spending > which is financed via low rates > which are artificially set and suppressed by the Federal Reserve. The FED is Congresses "Golden Goose" - the mechanism through which they debase and steal from the American people, only to give it back to them in the form of "freebies", in exchange for votes = political power. In return, the FED is left alone and unmolested. Pauls bill died in the Senate for a reason.
It's not naive. It's a matter of principle of mine to avoid sweeping generalities as much as possible. Even if what you state is true, yet again we have gone full-circle and have concluded that all the ills that ail us are political in nature. Far be it from me to disagree with that.
So anything that's old is bad?
Why do we still use the compass? The wheel? Concrete? Roads? Writing?
Those ancient technologies are still in ubiquitous use today, yet, by your standards, we shouldn't use them because they're "old".
How does that make sense?
Haha, achilles, now you're being disingenuous and illogical. Your argument made use of an implicit categorical claim that "everything old is good". In response, when did I ever state that "everything old is bad"? I offered a counterexample to your original claim, i.e. I stated that "NOT everything old is good" or, equivalently, "some old things are bad".
Gold and silver are far more rare than seashells and paper, which makes them a much better alternative than fiat currencies.
I don't know about that... I am sure we can find some rare seashells or some really rare ink to use for paper money. Point is that I still don't see the difference between fiat currencies and fiat commodities.
Well, I think our views are diametrically opposite. That said, in your view, why do bubbles occur? Is endless deficit spending sustainable? If not, how do we stop it?
My opinion is that bubbles occur because it's in our nature to create them. There was a famous academic experiment that illustrated a creation of a bubble in an economy that consisted entirely of economics students trading pieces of paper. Endless deficit spending is certainly not sustainable and we have seen how the mkt stops it (by bringing the inevitable fwd the mkt transforms a long-term insolvency issue into a short-term cashflow one). As to political frameworks to prevent runaway spending, there are examples, as I have mentioned before. Australia, Norway and Sweden are countries that I know of that have done a lot of work on ensuring the long-term sustainability of their budgets.
I think you're in denial about the pitfalls of fiat money and the infallibility/corruptibility of the Central Bankers who control it.
That's a possibility. It's also possible that you're way too paranoid.
