What? Did you attend a MAGA rally last night, and now your mind is shot.
How does the Fed move interest rates?
- Thread starter kmiklas
- Start date
Why can't demand be infinite? If banks can magically create money we can have an endless spiral.
You must know the answers to all of your questions, as they are obvious.
I'd say that is indeed what we have.
(Bloomberg) this morning. Shocker ......... not (see chart image below).
Deal slump
Dealmakers across the globe are down around $1 trillion after transactions slumped 42% in the first half — the most in a decade. Mergers and acquisitions, new listings, and private equity deals dropped amid inflation pressures and credit constraints. Now, with the summer lull on the doorstep, things could just get worse for Wall Street, where banks have already been slashing bonuses and jobs in response to the slump.
And FedQT:-
Could have included a commodity index or two showing declines over past year as well due to less money chasing goods/services.
Deal slump
Dealmakers across the globe are down around $1 trillion after transactions slumped 42% in the first half — the most in a decade. Mergers and acquisitions, new listings, and private equity deals dropped amid inflation pressures and credit constraints. Now, with the summer lull on the doorstep, things could just get worse for Wall Street, where banks have already been slashing bonuses and jobs in response to the slump.
And FedQT:-
Could have included a commodity index or two showing declines over past year as well due to less money chasing goods/services.
Hello.
There's lot of misconception about the fed role.
Those myth is mostly due to misunderstandings of Federal Reserve policy and its relationship to Fiscal policy. In a technical sense, the Treasury prints money-like instruments when it runs a deficit. They expand private sector balance sheets by creating Treasury Bonds. They could, theoretically, fund their spending by printing physical cash. This would also be money printing. The Fed, however, is really just a big clearinghouse for banks.
They create reserves, which are money for banks, and that money expansion doesn’t necessarily cause private sector financial asset quantities to increase. In other words, the Fed is mostly engaging in the process of changing the composition of the assets the Treasury creates (via policies like QE) while the Treasury is the actual asset printing entity in an aggregate sense.
Quantitative Easing (QE) is a form of monetary policy that involves the Fed expanding its balance sheet in order to alter the composition of the private sector’s balance sheet. This means the Fed is creating new money and buying private sector assets like MBS or T-bonds. When the Fed buys these assets it is technically “printing” new money, but it is also effectively “unprinting” the T-bond or MBS from the private sector.
When people call QE “money printing” they imply that there is magically more money and more assets in the private sector which will chase more goods which will lead to higher inflation. But since QE doesn’t change the private sector’s net worth (because it’s a swap of deposits for bonds) the operation is actually a lot more like changing a savings account into a checking account.
On the other hand, The money multiplier concept implies that reserves are used to make new loans or that there is some necessary ratio between reserves and new loans. But the exact opposite is true. Banks make loans and find reserves after the fact. Bank lending is not reserve constrained. So the causation moves in the exact opposite direction from what most textbooks teach us. Bank loans create new deposits and banks find the necessary reserves after the fact if they must.
These a very good paper about this here: https://www.federalreserve.gov/pubs/feds/2010/201041/201041pap.pdf
LOL "money-like instruments", "reserves", "expanding its balance sheet" and on and on.
Why is it so hard to say they create monnnnnnnnnnney? More importantly from nothing.
If a private citizen does it, it is called counterfeiting and criminal.
There is far too much misunderstanding about our Government's central bank's role in supplying an economy with the right amount of money our economy needs to carry on commerce while protecting the stability of our money.
Someone, or some thing, has to create the money we use, and i don't want you to be the one that does it, and I'm sure you don't want it to be me. Let's let the government do it! The part of our Government that does it is the Congress. The Constitution gave the Congress this specific role. Neither the Fed nor the Treasury decides how much, semi-permanent "outside money" is to be created. It is simply a myth that the Treasury or our Central Bank has anything to do with deciding how much "outside" money is created. The Congress, and only the Congress, decides this. It decides this when they instruct the Treasury to spend in deficit.
If there is too much, or too little "outside" money created it is Congress's fault. The Treasury and Fed, working together, do an amazing job of correcting for too much outside money created by Congress, but they are powerless to do much about too little being created. Congress can also destroy money by taxing. And In this regard they have failed us all in recent years and we are beginning to see the damage Congress is doing to our democracy by failing to tax adequately.
By the way the vast majority of money in the economy at any time is temporary money created out of the semi-permanent form of money Congress creates. This huge amount of temporary money is created through the "magic" of fractional reserve banking which is the engine that drives our amazing American economy. All of us together determine how much of this temporary money we want. The Fed only influences us and implores us to create more or less, but we are the ones that decide how much of this temporary money we want to create.
If there is a take-away lesson here, it's that we should do a better job of electing an intelligent, well-educated Congress.
Happy Fourth of July, SunTrader!
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