Fed Reserve profits are the fastest growing revenue source for govt

[StarDust9182]

In 1971 when Nixon divorced the financial printing business from gold, did he also divorce government policy from reality as well?

There is a huge worldwide underclass of people who are unemployed, may live in mom's basement or with their parents (dependent on someone who will die one day), and really think protests will get them somewhere. The teaching profession helped create such by promoting people no matter what and inventing soccer games and relay races where everyone wins and the like. Jobs are going primarily to the baby boomers, not the ones who will pay for all the borrowing. If that group gets hungry, the late 1930s could re-appear.

The productive class is aging, have most of the cash and in some cases have abandoned any responsibility for the political and financial messes we see before us. I don't know how all this ends, but it frightens me a lot when I think about implications. My advice to people I talk with about this, is to ensure that they enjoy life as much as possible today, because I think the switch will happen relatively overnight and in a couple of years we will wonder if these times were really just a vivid dream.

Surprisingly, I have always been pretty positive, but reading the tea leaves has lead me to be concerned about the next 10 years. To me, it looks like the FED has failed by firing all its bullets and only managing to keep our head barely about the financial waters around us. Everything has an ending, and I look to what is beyond.

 

[Tsing Tao]

Quote from Ed Breen:

Really Oldtime, I am sorry you are resolved to die...but the sentiment you propose before you go is morally currupt and obviously stupid, as well as impractical.

You suggest that you (and suppose by extension your government) will borrow money with the expectation that you will die and never pay it back and that you will use that money in the short timie you have to borrow it, to give it to people who have no income and then you hope that after you are dead and no longer able to borrow money that they will be able to fend for themselves.

Did you think about that at all before you wrote it?

What do you think makes someone a producer beyond your expression of hope? Is it magic? Does it come from worshipping plains flying overhead? is it revealed in a dream after years of eating food stamp cheetos, drinking subsidy beer, and watching soap operas to hone your employment skills?

You propose to provide income to people without yourself being an employer who produces anything. You propose to steal money through fraud by borrowing the money with no intention to pay it back....and you think you have a moral basis for that?

Ed, there is a reason many of us have "oldtime" on ignore. Join the club and save some brain cells.

 

[Epic]

Great posts Ed!

There is only one problem with the Fed's viewpoint on inflation. I agree with your argument that their actions are not currently causing inflation due to the mechanisms you cited. However, the other edge of that sword must be recognized. Just as their actions are not causing inflation, their actions cannot stop it once it catches hold.

IOW, eventually the easy credit will find its way into the private credit markets. I believe it will be an accelerating event as opposed to constant velocity. If that is the case, there is literally almost nothing the Fed can do to prevent it other than to act preemptively.

What I am suggesting is that your assertion that financial institutions are trading their income to the Fed right now is true, but only because the private credit market is still broken. Under a broken circumstance, the private institutions gladly pull the Fed into the mix, but under a "fixed" circumstance, the private institutions push the Fed back out of the mix.

IOW, the Fed can act to prop them up in hard times, but can do very little to slow them down later. The private institutions can rely on their own private positive feedback loop to continue to expand credit. If this is the case, the only responsible argument is for the Fed to preemptively tighten the creation of credit.

 

[piezoe]

Quote from StarDust9182:

Yup. Without good intentions we would have no recovery. Come to think of it, with good intentions we would have no recovery.

Perhaps they should change economics from the dismal science to the science of good intentions. Wait a minute, isn't there a saying about good intentions and a very warm place?

Or just stop calling it a "science" and recognize it for what it is, whatever THAT is?

It's no accident that in Universities you generally find the economics department ostracized by the true sciences. At UC Berkeley for instance you'll find the economists cavorting with the social "scientists" --social science not being a science either. You might even find economists slumming with applied mathematicians -- which also isn't science, in spite of some scientists being superb applied mathematicians.

You can sometimes find the applied mathematicians playing well with the scientists for much the same reason that you'll find a Zerox machine in Science departments. But of course neither applied math nor zeroxing are sciences, though both are terribly useful to scientists.

 

[piezoe]

In this thread, there are some fine posts showing great incite from both Epic and Breen --the latter is someone whom on some other matters I often disagree. If you have not read them it would pay you to do so. They require careful thought.

 

[LVMises]

Quote from sumfuka:

Problem with farms are... who is going to farm it? Telling us city slickers to plant potatoes and lettuce, would be like telling us to go to jail.

Buy it and then lease it. Again, you need to have the capital. A few months ago farm land near me sold for $30k and acre.

 

[Ed Breen]

The biggest problem with the economics departments in 'elite' academia is that they are seperated from the finance departments at the university level and at the liberal arts college level, they don't even teach finance. That is amazing if you think about it...not including finance in your idea of economics? With appology to Marshall Mcluhan, 'the curiculum is the message.'

 

[StarDust9182]

Quote from piezoe:

In this thread, there are some fine posts showing great incite from both Epic and Breen --the latter is someone whom on some other matters I often disagree. If you have not read them it would pay you to do so. They require careful thought.

At times, one can learn the most from those we disagree with. If there arguments against one's position are sound, then a smart trader switches sides.

 

[TGregg]

Great discussion, guys.

Quote from Ed Breen:

None of this 'new' money is going into private credit formation.

Not so sure about that. Ultimately all this paper shuffling has one purpose, to let the US Government buy more stuff and hand out more "money" to people who presumably turn around and buy even more stuff. Presumably, if they accelerate that, then we'll have more money chasing fewer assets and bang! Inflation.

OTOH, Japan's been trying that for years. They couldn't get inflation going again even if Jimmy Carter came over to show them how. So I guess my theory is wrong.

 

[oldtime]

Quote from StarDust9182:

At times, one can learn the most from those we disagree with. If there arguments against one's position are sound, then a smart trader switches sides.

well Stardust, that's why I started switching sides. At first, Krugman sounds like a total nut case. But after listening to him for a while, he actually has a plan, unlike the republicans or democrats. It's a Keynsian plan, and we all know how that usually gets argued out.

But I just got to thinking, what I tell my wife and children about sound money management might be quite different than how I run my business.

I'm trying to teach my kids how to be sound long after I am gone.

I'm trying to run my business while I am still alive.

so there is an element of timing

if you are a trader, you know, sometimes it's ok to be wrong if your timing is right

and the worse thing is being right at the wrong time