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Fed, worried about recovery, will buy US debt

finance.yahoo.com

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Re: Fed, worried about recovery, will buy US debt

#31

Post by yummyfajitas »

jbooth wrote: post #24
startuprules wrote: post #9

Earlier quoted context omitted.

1.) The US wage stagnation/decline for the last 10-15 years has been caused by globalization of labor/emergence of China/India. It is not a recent phenomenon. 2.) If you think government printing money will increase/steady your wage, look no further then the last bailout/printing. The banks/shareholders got all the money. You got lost wages and lost jobs. On a side note, man, there's alot of sheeples on this board. D…

You're getting downmodded because you're expressing views on economics that are so far off that they "aren't even wrong", and doing them in a way that implies you're smarter than everyone else.

Not to mention the use of the word "sheeple".

[edit: just realized I agree with jbooth on something. I don't know if that's ever happened before.]

Re: Fed, worried about recovery, will buy US debt

#32

Post by jeromec »

mechanical_fish wrote: post #21
ww520 wrote: post #8

Does this mean the foreigners have lost faith in the US government and stop buying the US debt? The Fed buying US debt is like the left hand buying from the right hand.

No, I believe it has almost nothing to do with foreign investment. (Incidentally, foreigners have awesome faith in the US government, as evidenced by the fact that interest rates are as low as they have ever been, and -- frighteningly -- perhaps as low as they can be.) No, the government buying its own debt is a very famous accounting trick designed to create more money in the economy. This act is the basis of the fr…

This is a great explanation. Correct me if I'm wrong, but there is an important detail to note, which is the money supply is not being expanded significantly more in this action by the Fed any more than the normal course unless there is newly issued bonds/govt. debt. The problem is the govt. is reluctant to take on more debt, even though stimulus would be welcomed, because deficit worries persist. This Fed move will really seek to push down interest rates a bit more, by creating more demand for existing bonds. Unfortunately, these record low interest rates are not speeding economic recovery, and the money supply is not expanding (inflationary) as we would like, because banks are still hesitant to lend.

Re: Fed, worried about recovery, will buy US debt

#33

Post by jbooth »

yummyfajitas wrote: post #31
jbooth wrote: post #24

Earlier quoted context omitted.

You're getting downmodded because you're expressing views on economics that are so far off that they "aren't even wrong", and doing them in a way that implies you're smarter than everyone else.

Not to mention the use of the word "sheeple". [edit: just realized I agree with jbooth on something. I don't know if that's ever happened before.]

Yeah, that really doesn't help any argument.

Protip: When everyone else is crazy, re-evaluate the possibility that you're the crazy one :)

Re: Fed, worried about recovery, will buy US debt

#34

Post by jbooth »

startuprules wrote: post #29
jbooth wrote: post #24

Earlier quoted context omitted.

You're getting downmodded because you're expressing views on economics that are so far off that they "aren't even wrong", and doing them in a way that implies you're smarter than everyone else.

Please, then tell me why my arguments are wrong. Don't be offended just because you're one of those sheeples that go to work every day that have to withstand long commute and increasing workloads, so that you can be effectively taxed at 70% after inflation.

To start with, noone in the US is taxed at 70%. That's the "wrong" part.

Second, inflation doesn't even come into play with your tax bill, except maybe in a very tiny way in between withholding and tax day. And that inflation figure is currently about zero. So "taxed at X% after inflation" is meaningless. That's the "Not even wrong" part.

Re: Fed, worried about recovery, will buy US debt

#35

Post by muhfuhkuh »

startuprules wrote: post #30
MichaelSalib wrote: post #27

Earlier quoted context omitted.

Given that we're already experiencing zero or negative growth, inflation seems like a really good idea, especially since the Fed can stop anytime it wants and begin raising rates. By the way, this is not just my opinion. Conservative economist Tyler Cowen (who teaches at GMU) also thinks that a little inflation would be helpful: http://www.nytimes.com/2009/08/02/business/economy/02view.ht...

...Except it couldn't raise rates. Not with trillions of debt needing to be paid back by both government and corporations (hint: there's no way). So the fed will just print and print and print...until the dollar is worthless.

Right, which is what was supposedly happening with all the TARP and Stimulus and Cash4clunkers and houmebuyer tax credits. Guess what? Still, after 3 years of recession and 2 years of Great Recession, we still haven't gotten that worthless dollar and inflation. In fact, we're talking deflation. AND, wages are steady to up, not down as is to be expected.

Re: Fed, worried about recovery, will buy US debt

#36

Post by WiseWeasel »

rdtsc wrote: post #22
WiseWeasel wrote: post #18

Earlier quoted context omitted.

Deflation also pushes people with large home mortgages closer to the brink, as their debt increases in value, and their banks feel pressure to lower their risk exposure by refusing to refinance or renew loans and pushing loan holders to pay down their debts. It has the potential of making the housing crisis much worse for everyone. That's not even getting into what it would do to the commercial real estate market, wh…

> Deflation also pushes people with large home mortgages closer to the brink ... > thas the potential of making the housing crisis much worse for everyone. The housing "crisis" happened because people were getting large home mortgages. There shouldn't be people with large home mortgages. I interpret "large" here as bigger than they can chew. If they can't afford their home, they can't afford their home -- time to sca…

Because they were unfortunately quite common, and not propping them up would put a large portion of the population out on the street, and cause a further surplus of homes on the market, driving values down further in a vicious cycle. The point is they could afford their home when banks lent them money at reasonable rates, when the bank assumed they could always resell the home and get their money back, but when the current appraised value of the homes dropped, banks were left holding much riskier debt, and charging much higher rates to existing customers with variable-rate loans, as well as those due for renewal. This has trapped a huge number of homeowners. The situation is even more troublesome in commercial real estate, as loans are for relatively short periods, after which they must be renegotiated based on current value, against a backdrop of commercial leases for tenants rapidly dropping in many cities. It's the scale of the crisis on so many fronts which has such potential for devastation of the entire economy.

Re: Fed, worried about recovery, will buy US debt

#37

Post by anamax »

mechanical_fish wrote: post #21
ww520 wrote: post #8

Does this mean the foreigners have lost faith in the US government and stop buying the US debt? The Fed buying US debt is like the left hand buying from the right hand.

No, I believe it has almost nothing to do with foreign investment. (Incidentally, foreigners have awesome faith in the US government, as evidenced by the fact that interest rates are as low as they have ever been, and -- frighteningly -- perhaps as low as they can be.) No, the government buying its own debt is a very famous accounting trick designed to create more money in the economy. This act is the basis of the fr…

> Incidentally, foreigners have awesome faith in the US government, as evidenced by the fact that interest rates are as low as they have ever been, and -- frighteningly -- perhaps as low as they can be.

Interest rates reflect relative opportunities, not absolute value.

The fact that the US is seen as a better investment than, say, China, does not tell you that the US is a good investment.

> "zero lower bound".

0 is not a lower bound for interest rates. You can loan someone $100 today in return for $90 in ten years.

If you're trying to get folks to do something with the money that they borrowed, there are other levers. Or, you could just loan it to different people.

Re: Fed, worried about recovery, will buy US debt

#38

Post by jeromec »

yummyfajitas wrote: post #28
mechanical_fish wrote: post #21

Earlier quoted context omitted.

No, I believe it has almost nothing to do with foreign investment. (Incidentally, foreigners have awesome faith in the US government, as evidenced by the fact that interest rates are as low as they have ever been, and -- frighteningly -- perhaps as low as they can be.) No, the government buying its own debt is a very famous accounting trick designed to create more money in the economy. This act is the basis of the fr…

(Incidentally, foreigners have awesome faith in the US government,... This could also reflect a lack of faith in other governments rather than faith in the US government. If assorted European debt became 10x more risky but US debt only became 5x more risky, that would cause a flight into US debt.

Exactly correct. The U.S. can have economic problems, but as long we are still at the top, we remain at the top.

One of the more interesting reactions to the FOMC’s gloomy appraisal of the economic state of affairs is the surge of strength into the dollar and the corresponding tumble in the euro. The U.S. dollar index — which is heavily weighted to the euro — is up 1.8%. The euro is down against the buck to the tune of 2.1%, a giant move in the forex markets.

http://blogs.wsj.com/marketbeat/2010/08/11/oh-man-not-europe...

Re: Fed, worried about recovery, will buy US debt

#39

Post by startuprules »

muhfuhkuh wrote: post #35
startuprules wrote: post #30

Earlier quoted context omitted.

...Except it couldn't raise rates. Not with trillions of debt needing to be paid back by both government and corporations (hint: there's no way). So the fed will just print and print and print...until the dollar is worthless.

Right, which is what was supposedly happening with all the TARP and Stimulus and Cash4clunkers and houmebuyer tax credits. Guess what? Still, after 3 years of recession and 2 years of Great Recession, we still haven't gotten that worthless dollar and inflation. In fact, we're talking deflation. AND, wages are steady to up, not down as is to be expected.

"we still haven't gotten that worthless dollar and inflation" Oh yeah? Dollar is at 85 vs the yen, from 115 three years ago. Food prices doubled (food portions also got smaller), healthcare costs doubled, gas prices doubled, and so on. Are you using the old trusty government CPI for your inflation stats?

Re: Fed, worried about recovery, will buy US debt

#40

Post by yummyfajitas »

ww520 wrote: post #11
nerfhammer wrote: post #7

Earlier quoted context omitted.

Deflation allows personal buying power to increase holding income constant. Deflation is defined as a decrease in prices. You know what else counts as a price? The price of labor. I.e., wages. Average wages decreases under deflation, just like any other price. Deflation is not a magical money machine that makes us all richer.

But the real average wage adjusted for inflation has decreased for a long time. Deflation has in fact happened in labor cost. Now it's the time to bring the rest in line. It's unsustainable to have ever increasing asset price but lower labor cost. No one can afford to buy them at the end.

But the real average wage adjusted for inflation has decreased for a long time.

Is this really true? If you blindly apply inflation calculators to wage statistics, you get this result.

But on the other hand, people earning average wages live a much better life (in terms of goods/services consumed) than people in the past. Even the present day poor live what would have been called a "middle class" lifestyle in the 70's.

Something doesn't add up. Can anyone shed light on this?

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