Tapering - "Canary in the Mine?"

[zdreg]

Powell is either lying through his teeth or a complete moron.

Please give me a list of names of Central Bankers that don't lie. Typing out the list won't take much effort. It will be bloody short. Researching for a list might be like trying to find a needle in the haystack.

 

[Saltynuts]

How are your GME shorts doing? You shorted I believe when it was below $100. Now it's above $174!!

I would answer that question if it had any relevance to the subject matter of this thread.

 

[piezoe]

It will keep printing till the $US collapses. Then it will print more.

So long as population and productivity grows we will have to accommodate that growth by printing some more money. Otherwise the economy will stagnate and then ultimately be thrown into recession and deflation.

This is an unavoidable consequence of using fractional reserve banking to grow both credit and the economy. So far this has been quite successful for the U.S. But of course we have to be careful not to print money that can't be justified in terms of future productivity. This is a topic were there is certainly room for debate, so long as those debating the issue have their facts correct..

 

[DiceAreCast]

Total nonsense. Fed and Treasury operations are NOT one and the same, in fact in normal times they have nothing to do with each other and not a single bill or note or bond is bought by the fed.

Next, a deficit has nothing to do with the total debt outstanding except that a deficit is added to the total debt. Hence, total debt is non temporal while a deficit is an amount of negative cash flow in a defined timespan. Definitions. You can look them up.

Next, of course is every penny of the debt repayable. In fact every single month the treasury is redeeming debt at par value to make investors whole who lent years or months ago.

I stop here because your post is littered with factually wrong information. Worst, I already regret I replied because not even once have I ever seen you apologize or correct yourself even when proven wrong. As usual, you seem to know some basics about economics, (though even some very basic parts you already got dead wrong in this post alone) and some real esoteric weird stuff that contradicts facts and how the treasury and fed operates in the real world

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.

 

[zdreg]

This is a topic were there is certainly room for debate, so long as those debating the issue have their facts correct..

If you are familiar with debating and/or the subject of lying, having the facts correct is a necessary condition but not a sufficient condition to have a useful debate/conversation.

 

[piezoe]

Just a few hopefully short replies. I am confident you'll correct me if in any way I am wrong here.

Total nonsense. Fed and Treasury operations are NOT one and the same, in fact in normal times they have nothing to do with each other and not a single bill or note or bond is bought by the fed.

I don't believe a said the fed and the Treasury are one in the same. I said they are coordinated operations (separate of course) that appear as one giant operation when you view their consolidated books. When the Fed credits the Treasury's reserve account to cover short falls this is an example of the coordination I am speaking of. You may not be aware that the Treasury always spends first, and then later appears to borrow when it sell bonds to primary dealers at auction.

Next, a deficit has nothing to do with the total debt outstanding except that a deficit is added to the total debt. Hence, total debt is non temporal while a deficit is an amount of negative cash flow in a defined timespan. Definitions. You can look them up.

This I believe is quite incorrect and possibly the source of confusion. There is no debt. The nation "prints" the money it needs beyond its income to pay its debts. The deficit is equal to the penny what you, I and others call "the National Debt." That you could be confused about this issue is understandable. Most people such as yourself believe he government actually borrows to pay its debts. But it doesn't. It 'prints' when the fed credits the Treasuries Reserve Account to cover overdrafts, and then later appears to borrow when it sells bonds. What is it actually doing however is exchanging an interest paying form of money, the bond, for the money the fed printed and the Treasury spent into the economy. This is the money that economists refer to as "outside Money."

Next, of course is every penny of the debt repayable. In fact every single month the treasury is redeeming debt at par value to make investors whole who lent years or months ago.

This is of course is what it appears as to all of us, but it one of the things that
isn't what it appears to be. And that makes it difficult to understand to finances of a Government that issues its own fiat money and has very deep sovereignty over the money it issues. When the Government redeems "debt" at par value, it is merely putting back into bank reserve accounts the readily spendable money it drained from the economy when it sold the bond in the first place. To quote economist Randall Wray: "Of course governments believe that they must sell bonds to borrow the funds necessary to finance spending. However this is an illusion, as the spending must come first. ...bond sales (whether by the the Treasury or the Central Bank ) function to drain excess reserves; they cannot finance or fund deficit spending."

I stop here because your post is littered with factually wrong information. Worst, I already regret I replied because not even once have I ever seen you apologize or correct yourself even when proven wrong. As usual, you seem to know some basics about economics, (though even some very basic parts you already got dead wrong in this post alone) and some real esoteric weird stuff that contradicts facts and how the treasury and fed operates in the real world

While others here have seen me apologize and correct myself when I have been wrong, you of course have not. You jumped to conclusions it seems when you went on to say "even when proven wrong." You yourself of course have not proven we wrong in anything I wrote, at least in the specific post we are referring to, although there could of course be a mistake.

I would strongly urge you to read at least some of the voluminous literature on this very topic we are considering. I always recommend Randall Wray's seminal book on Government Fiat Money though it is a bit out of date and there is much more recent stuff covering the same ground, but not as well as Wray did in my opinion. The book is "Understanding Modern Money." Wray was a Minsky protege and it's Minsky where you want to go to understand the ins and outs of "Inside" and "Outside Money". Other important authors who have written extensively on these same topics are the Australian Economist, William Mitchell, and I also should mention a new book just out that received very good reviews, and is written so that even a person without an economics background can follow it. It's Stephanie Kelton's "The Deficit Myth." Kelton, you may recall, was the chief economist for the Senate's Budget Committee. She teaches Economics at Stony Brook now. Also you might find Warren Mosler's books interesting reading because I think you come from a similar Background as Mosler, which I believe is Wall Street.

I recall something of your background, and so i have always assumed you have at least an undergraduate background in economics and likely a strong background in finance and bonds. But you do make my point that even those engaged in trading for banks and on Wall Street often do not understand the real nature of Treasury-Fed-Economy interactions and the role Fiat money plays that is both the topic here and also appears for all the world to be something they are not! I myself find this topic fascinating and have made a study of it over the past fifteen or so years. I invite you to join this study. You'll be very surprised to learn that would you were absolutely convinced was happening is not what's happening at all. In reality, there is no National Debt.

 

[DiceAreCast]

Short? As usual you burry every rebuttal in a litany of words. Others have seen you apologize? How about you post some examples where you apologized and stood corrected from your past post history? Then i can apologize myself and we can dive right into the subject matter.

And please stop being a constant asshole pretending only you read literature, research and gained knowledge. I worked as trader in the frontline as market maker and PM in prop groups and hedge funds for close to 20 hears and have been profitable. Whats your track record? Stop pretending others dont know anything. Its upsetting and makes you look like an arrogant prick.

Just a few hopefully short replies. I am confident you'll correct me if in any way I am wrong here.


I don't believe a said the fed and the Treasury are one in the same. I said they are coordinated operations (separate of course) that appear as one giant operation when you view their consolidated books. When the Fed credits the Treasury's reserve account to cover short falls this is an example of the coordination I am speaking of. You may not be aware that the Treasury always spends first, and then later appears to borrow when it sell bonds to primary dealers at auction.

This I believe is quite incorrect and possibly the source of confusion. There is no debt. The nation "prints" the money it needs beyond its income to pay its debts. The deficit is equal to the penny what you, I and others call "the National Debt." That you could be confused about this issue is understandable. Most people such as yourself believe he government actually borrows to pay its debts. But it doesn't. It 'prints' when the fed credits the Treasuries Reserve Account to cover overdrafts, and then later appears to borrow when it sells bonds. What is it actually doing however is exchanging an interest paying form of money, the bond, for the money the fed printed and the Treasury spent into the economy. This is the money that economists refer to as "outside Money."


This is of course is what it appears as to all of us, but it one of the things that
isn't what it appears to be. And that makes it difficult to understand to finances of a Government that issues its own fiat money and has very deep sovereignty over the money it issues. When the Government redeems "debt" at par value, it is merely putting back into bank reserve accounts the readily spendable money it drained from the economy when it sold the bond in the first place. To quote economist Randall Wray: "Of course governments believe that they must sell bonds to borrow the funds necessary to finance spending. However this is an illusion, as the spending must come first. ...bond sales (whether by the the Treasury or the Central Bank ) function to drain excess reserves; they cannot finance or fund deficit spending."



While others here have seen me apologize and correct myself when I have been wrong, you of course have not. You jumped to conclusions it seems when you went on to say "even when proven wrong." You yourself of course have not proven we wrong in anything I wrote, at least in the specific post we are referring to, although there could of course be a mistake.

I would strongly urge you to read at least some of the voluminous literature on this very topic we are considering. I always recommend Randall Wray's seminal book on Government Fiat Money though it is a bit out of date and there is much more recent stuff covering the same ground, but not as well as Wray did in my opinion. The book is "Understanding Modern Money." Wray was a Minsky protege and it's Minsky where you want to go to understand the ins and outs of "Inside" and "Outside Money". Other important authors who have written extensively on these same topics are the Australian Economist, William Mitchell, and I also should mention a new book just out that received very good reviews, and is written so that even a person without an economics background can follow it. It's Stephanie Kelton's "The Deficit Myth." Kelton, you may recall, was the chief economist for the Senate's Budget Committee. She teaches Economics at Stony Brook now. Also you might find Warren Mosler's books interesting reading because I think you come from a similar Background as Mosler, which I believe is Wall Street.

I recall something of your background, and so i have always assumed you have at least an undergraduate background in economics and likely a strong background in finance and bonds. But you do make my point that even those engaged in trading for banks and on Wall Street often do not understand the real nature of Treasury-Fed-Economy interactions and the role Fiat money plays that is both the topic here and also appears for all the world to be something they are not! I myself find this topic fascinating and have made a study of it over the past fifteen or so years. I invite you to join this study. You'll be very surprised to learn that would you were absolutely convinced was happening is not what's happening at all. In reality, there is no National Debt.

 

[kmiklas]

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.

1. You don't mention Fed purchase of non-treasury bonds: everything from corporate bonds to commercial paper to munis.
2. You didn't answer the question: what will be the first signs of tapering, where will it first manifest itself, and what is your best timeline projection?

Thank you for writing this up.

 

[Ninja Mobile Trader VPS]

FOMC roadshow?

1. You don't mention Fed purchase of non-treasury bonds: everything from corporate bonds to commercial paper to munis.
2. You didn't answer the question: what will be the first signs of tapering, where will it first manifest itself, and what is your best timeline projection?

Thank you for writing this up.

 

[kmiklas]

Pure guesswork.

Also the fact that you believe what Powell is spewing means you are clueless.

Powell is either lying through his teeth or a complete moron. I suspect it's more the former bit likely a combination of the two.

He's not a moron.