I don't know where (or when) it all falls down, but I do know I don't want to depend on Zeitgeist for anything other than entertainment.
Who is not printing money?
- Thread starter ValeryN
- Start date
We don't disagree as much as it might appear. But we can't discuss some of these matters in an intelligent way because there are some basic facts we do disagree on. There can be only one set of facts, Trump's White House Press Secretary to the contrary. So one of us is wrong. We can't both be right. So until we can decide on which one of us is wrong further discussion of the role of the Fed is pointless and will lead nowhere. You say: "The FED (through the government), is controlling every aspect of money, be it your inside money for the banks, or outside money." I say, this is not true. One of us is wrong.
Exactly right. Money doesn't mean anything anymore. They can print up as much as they want, and the interest isn't set by the market.
Going forward, it looks like we are going to also get price controls. Gee, lets see the FED control even that. Sure they can force a cap on the cost of something, but what they do when that something isn't available? They can't magically bring it into existence.
Good summary of our impasse though!
This is the main thing we disagree on. I maintain the only net printing occurs when the fed covers a Treasury overdraft. So this inside money, which is the amount of new base money introduced into the economy via this overdraft process is strictly determined by Congress. The fed has no say in this.
I will not go into it here as it is too complex for an ET forum -- at least this one. But when the fed buys back as many Treasury's as they deem necessary, to control interest rates and help fulfill their mandate from Congress, there is actually no net new printing occurring. You would have to understand the connections between the Treasury Balance Sheet and the Fed balance sheet to see that that is the case.
You believe the Fed "can print as much as they want". I maintain this is a myth, and that you are wrong.. The Fed can indeed print money, but it is Congress that constrains how much they can print. The Fed does not decide how much to print independent of Congress as most people believe it does. There is only one net printing step, outside of special legislation that may be passed in an emergency, and that occurs when the Fed covers a Treasury overdraft.
[QUOTE="NoahA, post: 5514799, member: 519569"
Going forward, it looks like we are going to also get price controls. Gee, lets see the FED control even that.
Good summary of our impasse though![/QUOTE]
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AS badly as price controls turned out for Rich Nixon, not likely we see those all unless its for big pharma\ or on oil longs maybe \LOL
Going forward, it looks like we are going to also get price controls. Gee, lets see the FED control even that.
Good summary of our impasse though![/QUOTE]
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AS badly as price controls turned out for Rich Nixon, not likely we see those all unless its for big pharma\ or on oil longs maybe \LOL
I agree with this. And this is why QE in some ways didn't have the intended consequence they wanted. I firmly believe they wanted inflation, and they were so unhappy when they didn't get it up fast enough, full well knowing that only inflation will help prolong the looming debt bomb. Then luckily Covid came and it allowed the government the ability to directly send the printed cash to people. No need to just give it to banks for their balance sheets in order to lend out, they could directly send it to consumers.
This is the whole idea behind a central bank digital currency. Giving money to banks for them to lend out, when they sometimes don't want to lend it out since they know its all bad investments, doesn't have the same affect as giving it directly to people. This way, you can also control who gets what, and what they can use it for. It really is the perfect form of control.
When nobody wants to buy bonds the government issues to pay for all this, the FED easily just buys them up. If the long end of the yield curve starts to get out of whack, they clearly think they just need to print more money and go into the markets and start buying those long dated bonds as well. So I think printing money isn't the issue, but rather, what happens when China and Russia want to stop using the dollar to price oil or other commodities. If the value of the dollar drops, and US has to pay more to import shit, then the real problems happen. But we are probably far away from that as what I am watching, the world is still having to acquire US dollars, so there is still a demand for them. And although so much has already been printed, they seem to keep being able to shovel out more to all the parties in need.
When I pointed out that Congress, not the fed, determines how much new base money will get printed, you say you agree with this. Then you paint a picture incompatible with this.
No one gives money to banks, especially not the Fed. I'm sure you know that as well as I do. Banks buy or borrow at wholesale prices and lend at retail prices. If they make too many bad loans they don't go bankrupt as they did pre-1930s banking laws, but they do undergo resolution, a process that protects depositors; it does not protect the bank's owners.The Bank abuses that we all complain about are things that Congress has made off-limits for the Fed to regulate. Those big bonuses paid right after the financial crises -- Bernanke said they made him mad. But He was powerless to do anything about it.
When the fed buys treasuries they appear to be printing money to buy the Treasuries. But this is a mirage, though a well hidden one. Overall the net process is actually an exchange of non-interest paying base money -- previously printed when a deficit was created by Congress-- for interest bearing Treasury securities. If you think of this operation as the exchange of one kind of money for another you'll have a much more correct picture. In net this buying of Treasuries by the Central Bank does not amount to a further printing of base money even though it seems that is what is happening. You'd have to consider what happens, eventually, on the Treasury side to see the entire picture.
I am aware that there are millions of people, thousands of financial journalists, and even some politicians, economists, and possibly even a few central bankers who think bond buying by the fed amounts to an additional printing beyond what occurs when deficits are created. They are all wrong! And they are the source of your misunderstanding.
How can you learn about these operations and what is really happening as opposed to what it seems is happening? It will take considerable effort to learn this, mainly because we are all treated to a continuous barrage of misinformation, and opinions based on misinformation, which makes this learning difficult. There is now, nevertheless, a wealth of correct information available, and some of it is approachable by those without specific study in Treasury-Central Bank accounting.
Within the last year or too the former Senate economist -- now professor -- Stephanie Kelton published a book called the "The Deficit Myth" that any educated person can read and understand. This would be a great place to start. If you find Kelton's book interesting there is a wealth of scholarly work out there that will access and expand on the details. I always recommend L. Randall Wray's monograph, "Understanding Modern Money", first published about 1992, I believe, and now a classic work. It's out in a new addition, possibly with an altered title. Also there is a new college text in Macroeconomics by Mitchell and Wray that treats this subject correctly. The older standard texts in Macro all contain serious errors regarding money and banking.
There are plenty of reasons why misunderstanding of Treasury and Central Bank operations abound. I am suspicious, especially about Powell, that sometimes even our Fed Board does not fully understand what the Central Bank is doing. I did not, incidentally, have that suspicion when Bernanke or Yellen were there. There is a wonderful book just out by the former Fed Bond Trader Joseph Wang entitled "Central Banking 101" , WANG GETS IT! Read that too.
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I'm not an expert in this space, so I won't dig too deep into it, but the only reason banks are making money in this environment is because they know the FED has their back. The FED will backstop them no matter what they do. Its like UBI. Lets just give people money for being alive! When a bank writes a mortgage, they don't care about getting their money back because it gets sold to the FED. The bank collects the fees, and the tax payer gets the debt. Its a business that can't lose! So is this not giving away money?
I got back to my original point. You keep saying that money printing isn't happening or that its not bad, or I don't even remember what. And my point is that if its so great without consequences, why not just print more? Why are people poor and suffering? The government should just do more of it if its working so well.
I wholeheartedly agree. Well said!
P.S. Banks don't sell their Mortgages to the Fed. The Fed does not "bail out" insolvent Banks. I learned that the hard way. Insolvent banks undergo resolution, they don't go bankrupt. The Fed did resolve issues with illiquid assets, but that's very different from insolvency. The Fed does have banks' back as you put it. That's really the fundamental reason for existence of the Fed. The Fed does not give money to banks, nor will it rescue an insolvent bank. The depositors are the ones rescued, not the owners.
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