Inflation at 53-year low as QE money printing rages unabated!

[Ricter]

I mentioned that Soros preferred that the troubled assets remain with the banks. I tend to think his approach would have been better in the long run. But we have to give the Fed some credit here, because by rescuing real estate they also made those securities that the Fed traded for credits to the Banks' reserve accounts worth something. It is too soon to know, but my guess is that the Fed will come out all right on them, and probably even make a little profit when they eventually unwind the securities they took off the banks hands. Remember they were bought by the Fed at a discount.

"Conditions are better than they would have been, because we did X. But we can't know for certain unless we go back in time and don't do X."
vs.
"Conditions would be better than they are, if we had not done X. But we can't know for certain unless we go back in time and don't do X."

 

[piezoe]

?

Do you not read the posts you respond to or is this a version of trolling?

http://thedailyshow.cc.com/videos/q7hzaa/the-big-bank-theory

I gave this link to you in this post.

I saw the original interview, not the Stewart program. (But I just now saw the Stewart program and LMAO.
This, however, is what I heard Bernanke say: 1. "we're not printing Money." and 2. "[What we are doing is] much more akin to printing money then borrowing, although not exactly the same."

In other words, they are doing something like printing money but not exactly the same.

I will explain to you what the difference is. When a country prints money -- all countries with their own currency can do it -- money is created but not tied to valuable debt. This is what Zimbabwe has been doing, and what Argentina, Germany, Poland, Hungary, Serbia,and the U.S. have done in the past. The U.S. did it during the Revolutionary war, for example. This, in every case, has led to hyperinflation.

What the U.S., on the other hand, did in its own "troubled assets" relief program, and in QE, is exchange created money for valuable securities. The Fed, as you know, bought Treasury bonds on the secondary market, and it bought temporarily illiquid, and discounted securities from banks. In the former instance this is not much like printing money though it may seem so, but in the later instance it is temporarily akin to, "but not exactly the same" as printing. Remember also that the Fed does have income that can be used for purchases, but it is unlikely they had 4 Trillion just sitting around waiting to find a good home.

The value of the securities a central bank buys is a key factor in determining whether they are "printing" or not. When the securities are liquid, Treasury bonds the process is what the Fed does every day through its bond trading desk and is its chief means of controlling the money supply. When it buys bonds it generally is expanding the money supply and when it sells bonds it is generally contracting the money supply. Although in the case of the recent QE, the amount bought was extraordinary.

The securities it bought from banks were a very special, and very unusual case of the Fed buying securities that were temporarily illiquid. It was known at the time of purchase that these securities were only temporarily illiquid and would soon be marketable again. The Fed bought securities from the banks to allow the banks to meet their reserve requirements. Had the banks retained the illiquid, but not worthless, securities, there would have been no way to mark them to market as required. Had they been truly worthless, and this is a very key point, then what the Fed did with regard to the troubled assets of banks would have been exactly the equivalent of printing! But they weren't worthless, just temporarily illiquid. The Fed will sell them off later, likely at a small profit, and in the meantime they will receive income from them.

In contrast to what the U.S. Fed did, a country whose credit is no good, and can therefore not raise money by selling bonds, may be left with no choice other than to actually "print" money and use it to pay their creditors. This is what economists mean when they speak of printing, and why Bernanke said they weren't printing..

The securities the Fed received at discount from banks were illiquid at the time they received them, but not worthless!

Had the Fed truly just printed trillions of dollars of money, hyperinflation would have resulted. But, as you know, inflation was held very much in check during the Fed's QE program.

There is a lot of excess money, not in circulation, just sitting in reserve accounts at the Fed. This is a potential source of inflation via the banks fractional reserve lending. The Fed has adequate tools to deal with inflation. For example, they can raise the discount rate, and as a last resort they can increase the reserve requirement.

Although the Bernanke interview excerpts provided wonderful comedic material for Jon Stewart, his show is probably not the best place to go to learn about Fed operations.

 

[piezoe]

"Conditions are better than they would have been, because we did X. But we can't know for certain unless we go back in time and don't do X."
vs.
"Conditions would be better than they are, if we had not done X. But we can't know for certain unless we go back in time and don't do X."

Exactly, but we can make an educated guess as to what would likely happen based on circumstances, can't we? And I suppose we will disagree on what would likely happen.

 

[fhl]

I saw the original interview, not the Stewart program. (But I just now saw the Stewart program and LMAO.
This, however, is what I heard Bernanke say: 1. "we're not printing Money." and 2. "[What we are doing is] much more akin to printing money then borrowing, although not exactly the same."

In other words, they are doing something like printing money but not exactly the same.

I will explain to you what the difference is. When a country prints money -- all countries with their own currency can do it -- money is created but not tied to valuable debt. This is what Zimbabwe has been doing, and what Argentina, Germany, Poland, Hungary, Serbia,and the U.S. have done in the past. The U.S. did it during the Revolutionary war, for example. This, in every case, has led to hyperinflation.

What the U.S., on the other hand, did in its own "troubled assets" relief program, and in QE, is exchange created money for valuable securities. The Fed, as you know, bought Treasury bonds on the secondary market, and it bought temporarily illiquid, and discounted securities from banks. In the former instance this is not much like printing money though it may seem so, but in the later instance it is temporarily akin to, "but not exactly the same" as printing. Remember also that the Fed does have income that can be used for purchases, but it is unlikely they had 4 Trillion just sitting around waiting to find a good home.

The value of the securities a central bank buys is a key factor in determining whether they are "printing" or not. When the securities are liquid, Treasury bonds the process is what the Fed does every day through its bond trading desk and is its chief means of controlling the money supply. When it buys bonds it generally is expanding the money supply and when it sells bonds it is generally contracting the money supply. Although in the case of the recent QE, the amount bought was extraordinary.

The securities it bought from banks were a very special, and very unusual case of the Fed buying securities that were temporarily illiquid. It was known at the time of purchase that these securities were only temporarily illiquid and would soon be marketable again. The Fed bought securities from the banks to allow the banks to meet their reserve requirements. Had the banks retained the illiquid, but not worthless, securities, there would have been no way to mark them to market as required. Had they been truly worthless, and this is a very key point, then what the Fed did with regard to the troubled assets of banks would have been exactly the equivalent of printing! But they weren't worthless, just temporarily illiquid. The Fed will sell them off later, likely at a small profit, and in the meantime they will receive income from them.

In contrast to what the U.S. Fed did, a country whose credit is no good, and can therefore not raise money by selling bonds, may be left with no choice other than to actually "print" money and use it to pay their creditors. This is what economists mean when they speak of printing, and why Bernanke said they weren't printing..

The securities the Fed received at discount from banks were illiquid at the time they received them, but not worthless!

Had the Fed truly just printed trillions of dollars of money, hyperinflation would have resulted. But, as you know, inflation was held very much in check during the Fed's QE program.

There is a lot of excess money, not in circulation, just sitting in reserve accounts at the Fed. This is a potential source of inflation via the banks fractional reserve lending. The Fed has adequate tools to deal with inflation. For example, they can raise the discount rate, and as a last resort they can increase the reserve requirement.

Although the Bernanke interview excerpts provided wonderful comedic material for Jon Stewart, his show is probably not the best place to go to learn about Fed operations.

When the gov't runs a deficit of a trillion dollars, they spend a trillion dollars more than they took in and that trillion dollars is then on the books of the banks.

When the US Treasury issues a trillion dollars of bonds, it is intended to soak up that trillion that it spent via the deficit and is on the banks books. But after the fed buys the bonds from the banks, the banks are then back the way they started with that extra trillion dollars of reserves on their books.

It's called monetizing the debt.

 

[piezoe]

When the gov't runs a deficit of a trillion dollars, they spend a trillion dollars more than they took in and that trillion dollars is then on the books of the banks.

When the US Treasury issues a trillion dollars of bonds, it is intended to soak up that trillion that it spent via the deficit and is on the banks books. But after the fed buys the bonds from the banks, the banks are then back the way they started with that extra trillion dollars of reserves on their books.

It's called monetizing the debt.

Huh?

 

[Tsing Tao]

I saw the original interview, not the Stewart program. (But I just now saw the Stewart program and LMAO.
This, however, is what I heard Bernanke say: 1. "we're not printing Money." and 2. "[What we are doing is] much more akin to printing money then borrowing, although not exactly the same."

Not exactly the same - you and he are on the same page. Adjust semantics so it seems innocuous. However, leading up to the question, he describes it just fine. "We go into the computer and add a few numbers to the accounts". So yeah, you're not running the printing press and minting fresh $100 bills, it's just done electronically. Give it up already. Here's Bullard admitting it as well.

In other words, they are doing something like printing money but not exactly the same.

LOL, ok.

I will explain to you what the difference is. When a country prints money -- all countries with their own currency can do it -- money is created but not tied to valuable debt. This is what Zimbabwe has been doing, and what Argentina, Germany, Poland, Hungary, Serbia,and the U.S. have done in the past. The U.S. did it during the Revolutionary war, for example. This, in every case, has led to hyperinflation.

It's not exactly that simple to get hyperinflation. If there was credit demand and the money was leaving the balance sheets of the banks in order to be lent out, and that money was driving demand for goods and services, you'd see a huge spike in inflation. But because it isn't - because it's resting there and instead being used to increase leverage and drive risk assets for return, all you've seen is a rise in asset prices with no demand follow up. Ie, just because housing prices rebounded and all those hedge funds decided to get into the rental market (and now rent homes as investment companies) it didn't drive more buyers to the housing market - outside of the funds. All that was done is to create a bubble in prices - which, once the funds begin to bail (and they have) will bust all over again. It's not healthy demand creation.

What the U.S., on the other hand, did in its own "troubled assets" relief program, and in QE, is exchange created money for valuable securities. The Fed, as you know, bought Treasury bonds on the secondary market, and it bought temporarily illiquid, and discounted securities from banks. In the former instance this is not much like printing money though it may seem so, but in the later instance it is temporarily akin to, "but not exactly the same" as printing. Remember also that the Fed does have income that can be used for purchases, but it is unlikely they had 4 Trillion just sitting around waiting to find a good home.

It doesn't matter what the Fed buys. I don't understand why you cannot grasp this. Whatever they buy, they give money for - money which gets used for something else. So they might as well have done so on their own and just bought the end asset. If they buy crap from the banks, they free up money the banks have to use elsewhere. I won't even get into the "discounted securities" argument, because that's a load of bunk. They paid pretty close to top dollar, and then gave the banks a dealer commission for selling the stuff, and then pay interest on the money they gave the banks which is parked at the Fed. Quite a deal.

Also remember that any bank can borrow money at essentially 0% and turn that money into returns by buying assets. If I could borrow an almost limitless amount of free money and then just buy bonds yielding 3%, that's "essentially printing money" too.

The value of the securities a central bank buys is a key factor in determining whether they are "printing" or not. When the securities are liquid, Treasury bonds the process is what the Fed does every day through its bond trading desk and is its chief means of controlling the money supply. When it buys bonds it generally is expanding the money supply and when it sells bonds it is generally contracting the money supply. Although in the case of the recent QE, the amount bought was extraordinary.

Extraordinary is the understatement of the decade.

The securities it bought from banks were a very special, and very unusual case of the Fed buying securities that were temporarily illiquid. It was known at the time of purchase that these securities were only temporarily illiquid and would soon be marketable again. The Fed bought securities from the banks to allow the banks to meet their reserve requirements. Had the banks retained the illiquid, but not worthless, securities, there would have been no way to mark them to market as required. Had they been truly worthless, and this is a very key point, then what the Fed did with regard to the troubled assets of banks would have been exactly the equivalent of printing! But they weren't worthless, just temporarily illiquid. The Fed will sell them off later, likely at a small profit, and in the meantime they will receive income from them.

How do you get that these securities are illiquid? When the Fed buys the 7 year or the 10 year notes, or even recently issued Treasury debt of any denomination (as it does frequently) that's not illiquid securities! In fact, there have frequently been issues in liquidity in the market because the Fed has bought so much, and everyone else now has to scramble to find good collateral whenever there are market stress issues - a situation the Fed has created.

The Fed will never sell them off, because it will never be able to without shocking the market. And by never, I mean 5-10 years out. Who knows what happens after that, or if there's not some sort of financial catastrophe and what the lunatics do then.

In contrast to what the U.S. Fed did, a country whose credit is no good, and can therefore not raise money by selling bonds, may be left with no choice other than to actually "print" money and use it to pay their creditors. This is what economists mean when they speak of printing, and why Bernanke said they weren't printing..

The securities the Fed received at discount from banks were illiquid at the time they received them, but not worthless!

Again, worthless doesn't matter. The Fed created money, and then gave that money to the banks (which the banks turned around and did other things with). It created money. Printing or electronically, it doesn't matter. Money was created. Vast sums of it.

Had the Fed truly just printed trillions of dollars of money, hyperinflation would have resulted. But, as you know, inflation was held very much in check during the Fed's QE program.

Not necessarily. That would depend on the velocity of money. Feel free to educate yourself with Hussman's viewpoint on it.

There is a lot of excess money, not in circulation, just sitting in reserve accounts at the Fed. This is a potential source of inflation via the banks fractional reserve lending. The Fed has adequate tools to deal with inflation. For example, they can raise the discount rate, and as a last resort they can increase the reserve requirement.

The Fed won't be able to do anything to combat inflation until they accept the fact that when they do, they will pop the bubbles they created. And they are unwilling to do so. This is why Bullard panicked when the S+P just recently fell 4%. A measly 4% after a more than 200% run up, and Bullard begins to panic.

See where Bullard calls for an end to accommodation, but then panics after the market responds. Proving without a doubt the only metric the Fed is looking at is the market.

Although the Bernanke interview excerpts provided wonderful comedic material for Jon Stewart, his show is probably not the best place to go to learn about Fed operations.

That was to illustrate how hilarious Bernanke is in the public's eye, and to show you how the man contradicts himself regularly - admitting that they are printing. "So, you're printing money?" "In effect, yes."

 

[Tsing Tao]

LOL! Fed's Fischer with the awesome comment this afternoon. I'll get the speech shortly.

FISHER: QE3 WAS A GIFT TO THE RICH.

 

[Tsing Tao]

Fischer's speech is here.

Too long to paste, it is an excellent read that shows the Fed Governor's viewpoint (that, surprising differs from the Fed Apologists on this forum) on a whole host of things. Some excerpts:

The renewed expansion of MBS holdings that began in October 2012 as part of QE3 was motivated less by any sense that the mortgage-finance market was dysfunctional than by the notion that normal frictions in that market potentially provided monetary policy with leverage to stimulate the housing sector—and thus the economy as a whole—at a time when more-traditional policy tools had been exhausted. The FOMC majority pushed aside concerns that providing targeted support to housing is more properly the province of fiscal policy, and voted to proceed.

What of the expansion of the Federal Reserve’s holdings of longer-term Treasury securities under QE3? Fed purchases of longer-term Treasuries amount to nothing more than the transformation of long-term Treasury obligations into short-term obligations of the Federal Reserve. Essentially, long-term government obligations are transformed into short-term government obligations. The government benefits from lower interest costs in the near term, but its future net revenues become more sensitive to future interest-rate increases. Government finance problems are reduced today, at a cost of potential future problems.

The larger bank reserves become, the greater is the government’s future interest-rate exposure.

Chairman Ben Bernanke famously said that “the problem with QE is that it works in practice, but it doesn’t work in theory”—QE3 seemed to succeed in pushing interest rates lower out along the yield curve, energizing the bond market and lowering the hurdle rate for discounting cash flows and earnings of companies whose shares traded in stock markets.[1] This came, of course, at the expense of savers who kept their money in the most basic of short-term investments. But this was a cost that the committee felt was exceeded by the expected wealth effect.

Indeed, I would rather we had never had QE3 in the first place. To this day, I feel that the costs of accumulating another $1.7 trillion of Treasuries and MBS will be shown to exceed the benefits.

For those with access to capital, it was a gift of free money to speculate with. (One wag—I believe it was me—quipped that there was, indeed, a “positive wealth effect… the wealthy were affected most positively.”)

Together with the healthy rejuvenation of the balance sheets and equity prices of investment grade companies, we have seen what I consider to be a manifestation of an indiscriminate reach for yield, a revival of covenant-free lending, and an explosion of collateralized loan obligations (CLOs), pathologies that have proved harbingers of eventual financial turbulence.

It goes on. There's a TON of great commentary in here. Kudos for Fischer for having the courage to say it.

 

[Tsing Tao]

Richard Fisher today: QE3 WAS A GIFT TO THE RICH

Bernanke on 4/22/14: FED ACTIONS DIDN'T FAVOR WALL STREET OVER MAIN STREET

Or headlines on 1/16/14: *BERNANKE SAYS CRISIS ACTIONS WERE AIMED AT HELPING MAIN STREET *BERNANKE SAYS FED `DID THE RIGHT THING, I HOPE'

LOL!

 

[Ricter]

Man, this debasement of the USD is killing our US exports.