What exactly is "quantitative easing"?

[SoyUnGanador]

So, if the Fed is NOT buying Treasuries, and from the data above it seems it not, then there can be no long term inflation correct? I mean, tons of things can cause there to be inflation in the short or medium term. But if the government is not printing money, then in the very long term there cannot be material inflation, correct? That doesn't mean we still can't have inflation for years to come, sourced from so much money printing the Fed has already done, of course.

I hear you about the theft cdcaveman. The poor get fucked the worst and they are the ones that least realize it.

 

[piezoe]

So, if the Fed is NOT buying Treasuries, and from the data above it seems it not, then there can be no long term inflation correct?

The fed doesn't generally cause inflation, however there are instances where it would like to but finds it difficult even by intentionally creating excess reserves. In the case of the present inflation, some think the Fed's failure to taper QE sooner on top of the additional money pumped into the economy by Congress's fiscal action was a contributing factor to the present inflation -- but not the main factor..

Technically, on net, QE does not create any new money (no money "printing") it merely converts money in its storage form, i.e., Treasuries, to money in the form of Bank Reserves, i.e., the spendable form. Treasuries represent new money created ("printed") by deficit spending. Because this new "deficit" money gets into the economy by being spent in. It first appears as increased bank reserves. It doesn't remain in that form. The Treasury will auction Treasuries in an amount equal to the new "deficit" money. This gives the appearance of borrowing, but the Treasury has no need to borrow. What is actually happening is the Treasury is just removing the new money from reserves and converting it to Treasury securities. We should think of these as interest paying stores of money. The Fed, in carrying out monetary policy, will then adjust the amount of money in the private sector appearing as bank reserves and the amount appearing as Treasuries. If the Fed decides more reserves are needed, as in QE, for example, where it wants to push down rates to encourage borrowing and spending, the FOMC can instruct the Bond Desk at the New York Branch to buy a certain amount of Treasuries on the secondary market, this reverses the affect on reserves that occurred when the Treasury auctioned securities.

Only Congress has the power to create new money. The Fed and Treasury accommodate the Congress. The Fed has no control over the amount of new money created, but it does get to decide how much money will be in the spendable form as bank reserves and how much will be in the interest paying, storage form, i.e., as treasury securities. Even when the Fed sends an order for new reserve notes to the bureau of engraving it is not creating any new money (it is "printing" only in the trivial sense). What it is doing then is converting bank reserves to notes. It does this according to demand and can just as easily shred notes and credit bank reserves. Vault cash is a part of reserves, so this is just a swap of one kind of bank reserves for another that leaves total bank reserves unchanged.

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*This entire post deals only with "outside" money, which is the money that moves back and forth between the government sector and the private sector. The main component of the "money Supply" is "inside" or "credit money".

 

[Overnight]

...The Treasury will auction Treasuries in an amount equal to the new "deficit" money. This gives the appearance of borrowing, but the Treasury has no need to borrow. What is actually happening is the Treasury is just removing the new money from reserves and converting it to Treasury securities. We should think of these as interest paying stores of money. The Fed, in carrying out monetary policy, will then adjust the amount of money in the private sector appearing as bank reserves and the amount appearing as Treasuries...

So it is just one giant con on the American taxpayer.

The bottom line is...The Fed (a private central bank) is loaning money to the public at interest, causing them to fall into eternal debt.

Explain that one away in simpler terms please.

 

[The_Krakenite]

So it is just one giant con on the American taxpayer.

There is quite some truth to this.

Some consider it just a huge failed experiment by Bernanke. Now we are stuck in a situation we can't ever get out of. Just like what happened in Japan years prior. But instead of paying attention to other nations' mistakes, the US likes to think 'We are different, cant happen here.' Just like with Covid.

 

[piezoe]

So it is just one giant con on the American taxpayer.

The bottom line is...The Fed (a private central bank) is loaning money to the public at interest, causing them to fall into eternal debt.

Explain that one away in simpler terms please.

Let me attempt to address the issue of Fed Branch Bank ownership, not only from my own point of view but also from the recent view point of a U.S. Appeals Court. I should add that this is also the view adopted, without exception, by all experts on Money Theory and Federal Reserve-Treasury operations.

None of what I have written will make any sense to anyone who harbors the idea that the Fed is a "private" bank. Ever since the banking laws of the 1930s, the idea that the "Fed" is still somehow private, as it was in the eyes of Congress in 1913, can not be supported with any known fact... The reality is that today, despite the outward appearance of the Fed's Branch Banks as having a "hybrid" government-private structure, as the Fed would describe them, these Branches are, along with all the other cogs and wheels of the Federal Reserve System, government entities.

A primary test of ownership of any enterprise is the destination of profits. One-hundred percent (100%!) of all net profits made by Fed Branch Banks flow, by federal law, directly back to the U.S. Treasury; not to private interests as incorrectly supposed by some who persist in insisting that the Branch Banks are “private” entities. The Fed says on its website that no one owns the Federal Reserve, and I suppose one could truthfully say that about the entire U.S. Government apparatus.

The fans of various You Tube, Fed exposés will no doubt say, "But what about the stock Fed member banks are required to buy, doesn't that impart ownership?" No it does not. The requirement that member banks buy shares in the Federal Reserve is an artifact left over from the 1913 Federal Reserve Act. The dividend these shares pay is fixed by statute and the "shares" do not impart ownership rights. But there is no need to take my word for this, because the issue of who owns the Federal Reserve Regional Branch Banks has been definitively addressed by a U.S. Appeals Court in Wells Fargo v. United States:

Congress has transferred functional ownership and control of the FRBs [Federal Reserve Banks] to the Treasury and to the [Federal Reserve] Board... FRB's are required to remit all their excess earnings to the United States Treasury ... Thus, the capital contributions made by member banks function as debt interests owned by the member banks, not equity interest ... money created for the Term Auction Facility or the Discount Window is as much a product of the public fisc as money that is distributed by the Treasury Department.
​

I hope this clears up for you any question of whether the Fed is a private or government entity. Once one realizes that the Fed is a part of the government, and not a private sector entity, what I have posted here and elsewhere should begin to make a little more sense to you.

Rather than respond to you with a long encyclopedic post that you probably would not have time to read, let me stop at this point and ask if there is anything specific in my previous post that still does not make sense to you or that you believe is incorrect. If you can now accept that the Federal Reserve Branch banks are not privately owned, though there is input into decision making from the private sector throughout the Fed System, perhaps you can see that it is simply not possible that, "The Fed (a private central bank) is loaning money to the public at interest, causing them to fall into eternal debt"

The real Fed, not the fictitious Fed being referred to in your statement above, has no control whatsoever over Federal Deficit Spending, it can not determine how much new semi-permanent (what I call "outside" money) to create. It does create new outside money, but it has no say whatsoever over the amount created! It does however play a critical role in influencing the demand for temporary money, i.e., "credit", in the economy (I call this "inside" money). It is through this role that the Fed's policies influence markets, the "money supply" and the health of the economy. Only the Congress, however, can create new outside money. Neither the Federal Reserve nor the Treasury can do this!; the Fed merely facilitates the Congress in it's constitutional role of "coin[ing] money", but it is the Congress, and only the Congress, that through its power to determine how much to spend and how much to tax decides how much outside money will be created.

 

[Overnight]

...

The real Fed, not the fictitious Fed being referred to in your statement above, has no control whatsoever over Federal Deficit Spending, it can not determine how much new semi-permanent (what I call "outside" money) to create. It does create new outside money, but it has no say whatsoever over the amount created! It does however play a critical role in influencing the demand for temporary money, i.e., "credit", in the economy (I call this "inside" money). It is through this role that the Fed's policies influence markets, the "money supply" and the health of the economy. Only the Congress, however, can create new outside money. Neither the Federal Reserve nor the Treasury can do that!; the Fed merely facilitates the Congress in it's constitutional role of "coin[ing] money", but it is the Congress, and only the Congress, that through its power to determine how much to spend and how much to tax decides how much outside money will be created.

So effectively, the Federal government, through the Central Bank, is charging interest on the money it lends itself. Why?

 

[piezoe]

Yes but I use this one:
https://fred.stlouisfed.org/series/RRPONTSYD
It's essentially bank deposits that got converted to treasuries, aka it is money that doesen't circulate.

That's exactly right! Treasuries are just a form of money that does not circulate until and unless the Treasury is converted back to bank reserves. But keep in mind the St. Louis Fed article is about the use of Treasuries, or other high grade securities, in Reverse Repos agreements. In other word they are talking about the Fed selling a Treasury or other Fed security to drain reserves say overnight or for a very short period and then buying the security right back. So there is no long term sidetracking of circulating money in these instances.

 

[Overnight]

That's exactly right! Treasuries are just a form of money that does not circulate until and unless the Treasury is converted back to bank reserves. But keep in mind the St. Louis Fed article is about the use of Treasuries, or other high grade securities, in Reverse Repos agreements. In other word they are talking about the Fed selling a Treasury or other Fed security to drain reserves say overnight or for a very short period and then buying the security right back. So there is no long term sidetracking of circulating money in these instances.

So why is there interest charged? Someone is making money on the interest paid on the loan. WHO?!

 

[piezoe]

So effectively, the Federal government, through the Central Bank, is charging interest on the money it lends itself. Why?

I'm afraid you've lost me. Are you referring to short terms loans it makes to the Treasury? It would be entitled to charge for that -- could be interest or just a fee for service but the Fed never makes a net profit after expenses. Any net profits that any part of government makes go back to the Treasury,i.e., back to the people. The Fed has to be compensated for the expenses it incurs. But there is no net profit to be made by the Fed in any dealing with the Treasury, or any other part of government. The U.S. government qualifies as non-profit. It has no earned income that would require it pay taxes to itself.

Here is a specific example of the government making money for the American people, and in doing so retaining its non-profit status. The Trap program returned many millions more to the government than was paid out. if it did not cost the government more to administer Tarp than was received back, than the difference would have flowed to the Treasury and reduced the amount the Treasury had to pay out to the private sector for the goods and services the treasury bought from the private sector in order to operate. Said another way it reduced the deficit and the amount of new outside money that deficits create.

Its this non-profit feature of government as a whole, which includes the Fed, that allows economists to use a simplified model that has a government sector and a private sector without any people in the government sector. All the people are in the private sector.

 

[piezoe]

So why is there interest charged? Someone is making money on the interest paid on the loan. WHO?!

Here is the basics. It is very simple. No part of he government retains any net profit, not even the Treasury. Any residual profit after expenses made by the government, or any part of government, flows to the Treasury and reduces the amount of money the Treasury has to pay out, just as the taxes you pay do. This is as true of the Fed as it is of any other part of government. So the "Who" in your question is, collectively, the 320 or so million American citizens.