How are your GME shorts doing? You shorted I believe when it was below $100. Now it's above $174!!
Tapering - "Canary in the Mine?"
- Thread starter kmiklas
- Start date
How are your GME shorts doing? You shorted I believe when it was below $100. Now it's above $174!!
Don't make me bust out the Ben Bernank!
Thanks. I randomly blacked out recently and forgot they like setting the USD on fire.
Anything else to remind me of Captain Obvious?
Yes, to early. With my lesson COMPLETELY consistent with my advice on this thread and what I've been telling you poor peeps for months, no?!?!!
You're not delusional but neither do you understand correctly composite Fed and Treasury operation. The true nature of these operations are non-obvious because Fed Treasury operations appear to be something they are not. Those who have made a detailed study of Fed-Treasury interaction and the composite books of these agencies have concluded that what's made by law to appear as two separate operations are really one coordinated operation.
The most important thing to be learned is that there is no such thing as what we all call the "national debt." Though there may be burdens we create that may be visited upon our progeny, such is NOT a national debt. The only thing that exists is not a National Debt, but rather the sum total of money created, as we like to say, "out of thin air." This is the deficit. But this deficit does not represent a debt that must be paid back. The deficit is the same as the total of money created over the years by the government to supply the economy with money to accommodate commerce, savings and investment. The Treasury sells securities, mainly Bonds, whose total face value equals the total deficit. This operation appears to be borrowing, but it is not. It is simply an exchange of one kind of federally issued money, U.S. dollars, for another kind of federally issued, interest paying money, a Treasury security. The interest paid on these securities appears on the spending side of the Treasury budget and needn't be considered when attempting to understand the overall Fed -Treasury operation and, in particular, the money creation step..
In the private sector bonds are a debt instrument; on the government's side, bonds are a monetary policy tool of the Central Bank. When the Treasury sells bonds it simply swaps dollars for IOUs that pay interest determined by a market process. This does not amount to borrowing, as we are all accustomed to thinking, because the dollars the Treasury receives are the same dollars the Fed created "out of thin air" when it credited the Treasury's Reserve account to cover overdrafts. This latter step is the only point at which net new money is created.
When the Fed buys a bond, as in its QE operation, it receives an IOU,i.e., the Bond, in exchange for money it credits to the holder's bank's reserve account. But it can not buy more bonds then the Treasury has already created and sold into the economy, and that is limited by the deficits the Fed has accommodated in the Treasury's Reserve Account. If the Fed should create the money it needs to buy the bond, which it can do, this does not amount to more net money creation because the money the fed used to buy the bond will return to the fed when either the bond is later sold or when the bond matures. Any net money above expenses that the fed receives, such as from bonds maturing or bond interest, minus fed expenses will then be automatically credited back to the Treasury's Reserve Account at the end of the accounting period. Both bond interest and Fed's operational expenses appear as Treasury spending.
These rather complex interactions between the Fed and Treasury are apparent once one makes a study of the books of the two agencies side by side. To the public, the appearance is every bit like a Treasury that has overspent its income and borrowed the difference. No wonder there is so much deeply held misunderstanding about government debt and deficits. We hear crazy stuff from not only the public, but from some economists and many politicians as well -- though I have always suspected that whenever they are opposed to particular spending for political or philosophical reasons politicians may make use of public misunderstanding to intentionally misguide their constituents. Clearly, however, there are at least some politicians who do understand these Treasury and Fed operations.
Treasury Fed interaction, particularly the net result, is not easy to understand because for individuals debt is real; we have no money machine in our basement and no one to automatically add money to our bank account whenever we want to spend more then our income.. It's very very difficult for us to understand these operations, and in particular that Treasury bonds are not debt instruments in the usual sense, but rather an interest maintaining tool and a way of controlling the amount of readily available money in the economy for spending , savings and investment. Of course Janet Yellen understands these operations in detail and that's why she is so confident, that despite the huge deficits that will fuel our investment in infrastructure and jobs, the Fed will be able to prevent inflation from getting out of control.
There are many many people in Banks and on Wall street, including those who trade in Bonds daily, who are adamant that they understand these Fed-Treasury-Economy Interactions, when in reality they don't. So be prepared to here once again the old woe is me regarding a National debt limit and deficits out of control! That said, there are very real constraints on net money creation,i.e., deficits, but there is no "national debt". I suppose we are stuck with this phrase, "National Debt" -- we do have a National Debt Clock on Times Square -- but until there is widespread understanding of where and how our money originates and what backs it, we'll go on doing stupid things because we are irrationally afraid of "the Debt". There is no debt and it never has to be paid back. So long as deficits are justified by future increases in productivity we should be just fine. We are now on a productivity standard, and that makes infinitely more sense than a gold standard, which can no longer be maintained in any case; but why would we want to? Going forward, we should be very attentive to making the kinds of investments in education and infrastructure that will help us maintain high productivity.
