Kuppy ....... Fed

[piezoe]

Rather than admit defeat and conclude they're no good at attaining those goals...

Ahem. The Fed can't admit defeat, they are ordered by Congress to do those things. The Congress seems not much concerned that they have asked the Fed to do something that can be difficult at best, and may not always be within their power to do.

You have based your beliefs on false premises. The correct information is available to you from many expert sources. I have often given references to especially knowledgeable sources in the economics thread, which see. Unfortunately myths have grown up around the Fed and how present day government financing works and these myths are thoroughly embedded in most Americans from childhood. Classically trained economists are just one source of these myths, politicians are another...

 

[spy]

That's fair enough. However, you'd think that they'd occasionally be pro-active rather than reactive. Even guys like Summers, who's far from a heterodox economist, where sounding alarm bells about inflation almost a full year before any rate increases.

OTOH, if your point is that they're an easy/only scapegoat then I'm happy to concede that... I don't hear anyone clamoring for free-banking though. Which, IMHO, may be the better alternative to central banking.

Ahem. The Fed can't admit defeat, they are ordered by Congress to do those things. The Congress seems not much concerned that they have asked the Fed to do something that can be difficult at best, and may not always be within their power to do.

You have based your beliefs on false premises. The correct information is available to you from many expert sources. I have often given references to especially knowledgeable sources in the economics thread, which see. Unfortunately myths have grown up around the Fed and how present day government financing works and these myths are thoroughly embedded in most Americans from childhood. Classically trained economists are just one source of these myths, politicians are another...

 

[NoahA]

The worst consequences we're likely to face are a few years of moderate to high inflation

This is I think going to be the pin that pops the bubble. We can't handle years of inflation. You see how hard the Fed is working to bring it down? As it is, the interest payments are going to swallow more of government cashflows. What will they do to make up the difference? Stop spending money or adding to the debt? If won't be QT if they expand the balance sheet. If they continue tightening, it won't be a soft landing.

During 2008, how far did those MBS have to drop before the whole tranche became worthless? It just a small amount from what I remember. A small percentage of loans brought the whole system to a halt. I imagine prolonged inflation, or interest rates even at this levels for a few years will have the same affect. Many people are barely hanging on. You see everyone getting by by delivering food? What happens when people stop splurging on this luxury? Those on the bottom are left to fend for themselves. It will be chaos and governments know this. This is why the monetary response to the lockdowns had to be so generous. There is option to prepare people for bad times.

 

[deaddog]

This is I think going to be the pin that pops the bubble. We can't handle years of inflation.

We did in the 70s and 80s. Prices shot up. Canada tried wage and price controls. (Didn't work). Wages kept up with prices, anyone on a fixed income got screwed.
The one thing I learned from that period is that whatever crisis is about to bring the economy to its knees is only a passing fad and will be replaced by some other crisis down the road.

 

[NoahA]

We did in the 70s and 80s. Prices shot up. Canada tried wage and price controls. (Didn't work). Wages kept up with prices, anyone on a fixed income got screwed.
The one thing I learned from that period is that whatever crisis is about to bring the economy to its knees is only a passing fad and will be replaced by some other crisis down the road.

Everything about this time was different. Debt wasn't where it is now, both personal and government. Housing wasn't 10x the yearly income, like it is now. Globalization was in its infancy. Supply chains not nearly as important. And I would also guess that the jobs people had were more important. Today all those techs jobs are way more fragile if you ask me, so can easily disappear.

Its like this. If you're 200lbs and have to starve for a few weeks, you will survive. If you're 100lbs and have to starve for a week, there is just no fat on your body to live off of and hence you won't make it.

 

[piezoe]

The point (which Piezoe may or may not say in the same terms) is that a government with the power to print money and confiscate your labor (taxes) at the point of a gun, cannot realistically experience 'bankruptcy' in terms of the domestic economy. About the very worst that can happen in an even halfway-functional economy is the Argentina experience of 50% inflation, and even that takes pretty significant effort.

A country can certainly "go bankrupt" in the sense of being unable to pay for imports, if the country does not produce sufficient exports to trade for those imports and its trade partners won't extend credit. But the USA has a very modest trade deficit, and American demand is so critical to the economies of net-exporter nations that we're a very, very long way from being cut off.

we must remember too that Argentina borrowed in currencies other than their own. Same problem Russia has today. That's real debt that can't be escaped by money printing!

What the U.S. is doing, and can get by with because of the special circumstance it finds itself in as the supplier of the reserve currency with an extraordinarily large economy, including significant exports that you mention, is to print whatever it needs to spend above its revenue and subsequently remove all of the newly created and spent money from the economy by selling bonds in an equivalent amount. Subsequently then the Central Bank will reinsert, by buying bonds, as much of the new money according to its analysis of the economy. This is as much art as science, and sometimes the C.B does better at this than at other times. The bonds the U.S. Government auctions have other purposes as well. Regardless, today these bonds are not being issued for the purpose of borrowing, though they give every appearance of such. Obviously there are limits.

 

[piezoe]

Debt wasn't where it is now, both personal and government

leave out government here. But it would be perfectly correct to be concerned about the pace at which deficits for non-investment purposes are being racked up. For example, deficits spent on wasting assets may lead to trouble because we can't expect a corresponding boost in productivity down the road from those kinds of expenditures.

 

[SunTrader]

Anyone and anybody (as in gubmint) can go bankrupt.

The U.S.A. cannot inflate away indefinitely. Everything has its limit.

 

[deaddog]

So what in theory happens if a country goes bankrupt?
What is worst case scenario if US were to declare bankruptcy?
I often thought when you had Trump as a president that that might happen. It was how he did business. Go broke and start over again.

 

[spy]

They go from first to third world status.

So what in theory happens if a country goes bankrupt?
What is worst case scenario if US were to declare bankruptcy?
I often thought when you had Trump as a president that that might happen. It was how he did business. Go broke and start over again.