What will happen in the economy if 10 year treasury yields hit 5.3% like in 2003?
- Thread starter KINGOFSHORTS
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Ya know I was thinking that with virus new cases/fatalities having peaked back in January and rapidly dropping off, barring any serious resurgence, tRump will not have the get-out-of-jail Covid card to pull once Manhattan DA or NY State AG nails his fat azz later this year or next year or two.
Ya know I was thinking that with virus new cases/fatalities having peaked back in January and rapidly dropping off, barring any serious resurgence, tRump will not have the get-out-of-jail Covid card to pull once Manhattan DA or NY State AG nails his fat azz later this year or next year or two.
that thought made me smile.
Are you not at all concerned that the Fed has shown an inability to do anything other than to purchase assets and increase their balance sheet? While previous and current levels seem to be well taken(which is debatable given the current prices of all assets) that is not exactly comforting seeing how the speed and magnitude of those purchases are going higher and certainly exceed the growth rate of the economy. Whether it is 10T, 20T, 50T or 100T there is a number out there that this divergence starts to matter. As a human being I would love for this experiment to get a soft landing but as a trader looking at patterns i fail to see a way out. Perhaps you do.
Given that the Fed is doing a good deal more than linearly purchasing assets I think it's a fairly gross mischaracterization you're making. As you can see here, the balance sheet balloons in crisis as most people in the macro world agree it should and flatlines or decreases in between.
Should we have cut taxes dramatically which prevented the balance sheet from resetting over the past 3 years when we weren't in a financial crisis? I can point you to contemporary posts I made here where I pointed out the idiocy of that at the time, so you won't find me arguing against that. However, if COVID hadn't come along I wouldn't have found the above chart terribly disturbing, certainly not to the gloom and doom crowd level we're seeing here. And I would expect the fed balance sheet to balloon when a crisis like COVID happens, that's a primary reason why we have a Fed.
I know it's terribly important now that a Democrat is President that we start caring immensely about the deficit and Fed balance sheet. Seems blatantly hypocritical but what do I know? I'd be interested in seeing your posts around May 5th 2020 when the latest massive spike happened showing your concern then?
QE was made possible by our much better understanding of money than we had in first half of the 20th Century. Bernanke and Draghi were both at MIT when Samuelson was there. They would have held similar views at that time, and subsequently both would have had to revise and evolve their views according to what was happening elsewhere in economics. I am referring to the work of Aba Lerner in the 1940's and later Hyman Minsky and others who begin to question conventional thinking on government "debt" and bonds.
This conventional thinking can be summarized. I will attempt to do this by condensing and paraphrasing what L. Randall Wray wrote in his introductory paragraphs to his Chapter 4 on Government Spending, Deficits and Money in his 1992 book Entitled, "Understanding Modern Money":
The conventional view is that tax revenue funds government spending. Spending in excess of revenue can be accommodated, at least temporarily, by borrowing from the public, i.e., issuing bonds. One method universally scroned as a means of funding deficit spending is issuance of currency, i.e., another type of government liability, because that would directly expand the the money supply and would, economists claim, cause inflation.
When bonds are issued to finance deficits, according to many economists, the money supply will increase only if the C.B. "accommodates" by increasing bank reserves. The common view is that government borrowing is likely to "crowd out" private borrowing by driving up interest rates. In the longer run crowding will depress aggregate supply and induce cost push inflation.
Most economists recognize that the benefits of deficits sometimes outweigh costs, however most would argue that persistent deficits must be avoided. Keynesian economists argue that deficits are appropriate in a recession but should be offset by surpluses during expansions. In the thinking of most, no government can operate in a manner that generates the expectation that its "debt" can never be retired but instead only "rolled over." It is not doubted that markets will lose trust in government if debt to GDP ratio grows too large. A specific threshold is not known, but many are certain it exists. Governments are believed to be subject to market forces that determine both the amount of debt and its interest rate that will be tolerated. If domestic demand for bonds is insufficient, then governments are forced to sell bonds in international markets [and] they might be forced to issue bonds denominated in a foreign currency. Governments might be forced to impose austerity on its citizens to placate international markets.
Wray follows the above summary of conventional 'wisdom' with this eye opening statement that I now quote exactly, but slightly condense. Here is what Wray wrote:
...[O]ur analysis will demonstrate that this view completely misunderstands the nature of government spending, taxing, deficits and bond sales. ... permanent consolidated government deficits are the theoretical and practical norm in a modern economy. While it is possible to run a surplus over a short period, ... this has income and balance sheet effects that unleash strong deflationary forces. ...[P]rivate sector preferences regarding net saving, [and] economic growth requires persistent ...deficits. Government spending is always financed through creation of fiat money -- rather than through tax revenues or bond sales. Indeed, taxes are required not to finance spending, but rather to maintain demand for government fiat money. Bond sales are used to drain excess reserves to maintain positive overnight lending interest rates, rather than to finance ... deficits. This leads to an entirely different view of the degree to which governments are 'forced' to respond to pressures coming from international markets. ...[M]ost of [these] pressures... are actually self-imposed constraints that arise from a misunderstanding of the nature of government deficits.
Our view builds upon the Keynesian approach and is probably most closely related to Abba Lerner's functional Finance approach. According to Lerner,
Our view builds upon the Keynesian approach and is probably most closely related to Abba Lerner's functional Finance approach. According to Lerner,
The central idea is that government fiscal policy, its spending and taxing, its borrowing and repayment of loans, its issue of new money, and its withdrawal of money, shall be undertaken with an eye only to the results of these actions on the economy and not to any established traditional doctrine about what is sound or unsound. (Lerner, A. P., 1943, Soc. Resrch. 10 , 39)
This is a scholarly work I have paraphrased and quoted, so naturally in the original it is well footnoted and referenced. This was published in 1992. It perfectly encompasses my current thinking which is the result of many hours of study commencing around 2009 and continuing to the present.
Now you will know where my, seemingly to some, radical ideas are coming from. My studies, and subsequent economic events, have convinced me that this new, rapidly growing school of economists, who are now being referred to as Modern Money Theorists, have been proven right by both events and facts, and that the older, conventional way of thinking is drastically off base and harmful.
What the 'MMT' economists are telling us is almost everywhere being mis-quoted or distorted in the media and even by some economists who very obviously haven't taken the time to bring themselves up to date. You'll read statements attributed to MMT economists such as, "debt doesn't matter," or "deficits don't matter. " These are irresponsible, misleading, distorted, oversimplified words taken out of context. They don't properly express what the MMT economists are really telling us.
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Helium balloons (inside a SpaceX's rocket) don't rise as quick:-
https://fred.stlouisfed.org/series/WALCL\
Level off? Seriously?
https://fred.stlouisfed.org/series/WALCL\
Level off? Seriously?
OMG, he is in so much deep doo doo. Did you happen to hear what the Fulton County, Georgia, D.A. is doing!? Shes going after him on RICO charges in conjunction with the election, and she's hired what many think is the top RICO prosecutor in the country to empanel a grand jury. Yikes!Ya know I was thinking that with virus new cases/fatalities having peaked back in January and rapidly dropping off, barring any serious resurgence, tRump will not have the get-out-of-jail Covid card to pull once Manhattan DA or NY State AG nails his fat azz later this year or next year or two.
The fed's balance sheet has grown well in excess of the growth in GDP. There is no mischaracterization there. The "flat lines" and "declines" between crises are insufficient to even things out. They have thrown an increasing amount of dollars at each of the last two crises as the only solution and that should be troublesome for anyone holding cash. Personally, i doubt they would even attempt to reduce their balance sheet as that is now, in my opinion, untenable.
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So first off, you were equally concerned and crying crocodile tears about this last May? Two years ago? Or just now? Given that it's a continuing problem according to you, one wonders why just at the end of Jan this year you decided to speak up about it?
Secondly, why is it untenable? If we had simply refrained from giving billions of dollars to people like me who didn't need it over the past 3 years it would have gone down sharply. As it was, it leveled off at what was clearly a sustainable level and there's no indication that this too isn't a sustainable level. You keep wringing your hands with these vague pronouncements based apparently entirely on a gut feel you have, while continuing to move the goalpost every time it's pointed out to you that what you just said isn't actually accurate. The accuracy of those gut feels isn't terribly convincing given the veracity of what you seem to be basing those gut feels on.