Fed to transfer $140 billion in remittances to Treasury
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Quote from Cdntrader:
Wouldn't the USD tank and therefore $ rush into US equities like it did in Zimbabwe and Argentina?
There are major differences between both the Zimbabwe and Argentinian situations and what is happening with monetary policy and the economy in the U.S. today.
Zimbabwe simply printed money, without acquiring new debt, and tried to use it to pay debts, with some limited success. This is the classical meaning of "printing" in economics..
In the U.S. however new debt is linked to the Feds bond buying program. Never mind that that new debt is acquired by, used by, and owed to the same entity, we U.S. citizens! This is far different, however, than the Treasury simply printing money and using it to pay on liabilities without any new debt being acquired. That would be printing in the classical sense and is what Zimbabwe did.
I am not fully familiar with the Argentinian situation. It was far more complicated than the Zimbabwe situation resulting from absolute government incompetence. The Argentinian crisis was not at all like what happened in Zimbabwe. Although Argentina suffered huge inflation during the period of debt default when no one wanted the Peso, there was always residual competence in the government, despite the untenable situation. Eventually they were able to right their sinking financial ship and their creditors agreed to allow them to roll debt over.
The U.S. enjoys many financial advantages that the Argentinians do not. There is absolutely no comparison between either the U.S. or Argentina with Zimbabwe.
http://en.wikipedia.org/wiki/Argentine_economic_crisis_(1999–2002)
The cost is just the operational cost. The Fed pays a six percent dividend to the member banks for the use of their money. (A little high perhaps.) Interest paid to the Fed is returned to the Treasury after expenses. The Fed is a pseudo independent part of the Treasury operation, not a privately owned bank.
Wouldn't it be better to tweak the Fed to correct defects, rather than start over. The Fed is supposed to be an independent arm of the Treasury responsible for monetary policy and regulation and theoretically not subject to political pressure. The independence is not as it should be, and their is a conflict of interest created by letting the private member banks have too much influence over the regional boards. These are some of the things that could be corrected in a restructuring.
You still need an agency to regulate banks and set monetary policy. I think the idea behind the Fed is good, but the execution could be improved.
Ultimately the Fed is responsive to Congress. Politicians have little appetite for long term solutions. It takes far to long to see the results of systemic economic repairs. What Congress wants is something that will be evident by the next election cycle. Hence the fix for a battered and shrinking middle class, growing poverty and growing wage disparity becomes credit. Push down rates and make it easier for the the struggling half of the middle class to obtain credit -- "let them eat credit." It is fast, and the results are evident in a few quarters.
On the other hand, a real fix would require fixing public education, and bringing medical and defense costs in line with those of the other 13 industrialized nations. The first would take a generation, and the other two are politically unachievable.
I don't see any difference at all comparing to Zimbabwe
US Government can't pay market rates so Fed prints money monetizing government debt almost 100% at current rate of QE and it happens for almost 5 years for now
Just imagine 1% interest rate increase will increase interest payment by $170 bln. Now think about sequester and how bad it's for the economy at $85 bln per year
What choice do they have?
Look what happened yesterday, Fed really chickened out by not announcing tapering because rates are up
And it seems there is no really any exit from this death spiral of printing - if they stop printing there will be huge sell off. rates will definitely overshoot. If they don't stop printing eventually it will be Zimbabwe or default on Government bonds and then Zimbabwe
Maybe instead of me worrying about what will happen to interest payments if interest rises by one percent, you should think about depression and what happens if prices fall by 20% and the dollar rises in value by 20% and there is 25% unemployment. Then what will the effective interest rate be on those fixed rate bonds?
Quote from piezoe:
Maybe instead of me worrying about what will happen to interest payments if interest rises by one percent, you should think about depression and what happens if prices fall by 20% and the dollar rises in value by 20% and there is 25% unemployment. Then what will the effective interest rate be on those fixed rate bonds?
look it's kind of stupid argument
unemployment was 0% in the Soviet Union and unemployment now 25% in Spain. Believe me life is still much better in Spain now for everyone than it was in Soviet Union
but if price are in a bubble like it was with RE it's quite natural for them to return where they should be and you can't call it deflation
If Fed doesn't want deflation their most important task must be prevent speculation and bubbles instead they encourage them
we're clearly in hyperinflation phase in stock market. and looks like housing is in another bubble. But Fed mumble something about they need more data
Those are good points, and I can't disagree with any of it. The real insurmountable problem lies with the U.S. Congress. Many of them believe in economic policies that have already been shown to be invalid, And they are unwilling to work together to affect sound long range planning and tackle difficult problems. Many of them only look ahead as far as the next election and they want to do things that will provide instant gratification for their constituents. Easy credit to placate their constituents has been the answer for them, though that leads to trouble in the long run. Many others from safe districts find that disrupting any attempt to do anything at all is popular with their government hating constituents.
By allowing gerrymandering to create many safe House districts we have more or less sowed the seeds of our own destruction. The problems of rancor, non-cooperation, disruptive and destructive behavior we see in the U.S. House today had its roots in the Newt Gingrich House, with Tom Delay and the K Street gang. http://www.politico.com/story/2013/07/gop-could-pay-price-for-gerrymandering-93597.html
"If you believe government is bad, you will create bad government" -- George Soros.
By allowing gerrymandering to create many safe House districts we have more or less sowed the seeds of our own destruction. The problems of rancor, non-cooperation, disruptive and destructive behavior we see in the U.S. House today had its roots in the Newt Gingrich House, with Tom Delay and the K Street gang. http://www.politico.com/story/2013/07/gop-could-pay-price-for-gerrymandering-93597.html
"If you believe government is bad, you will create bad government" -- George Soros.
Quote from piezoe:
Maybe instead of me worrying about what will happen to interest payments if interest rises by one percent, you should think about depression and what happens if prices fall by 20% and the dollar rises in value by 20% and there is 25% unemployment. Then what will the effective interest rate be on those fixed rate bonds?
i have no problem with that,but obviously gvt is not interested in such scenario.
for those ,who are talking about negative rates-they are already negative and been there for quite a bit of time(in case,if you missed)just an example-
http://seekingalpha.com/article/222853-can-the-fed-funds-rate-go-negative
Huh? Rates already negative? Which rates?