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Federal Reserve balance sheet trends

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Re: Federal Reserve balance sheet trends

#91

Post by roenxi »

adventured wrote: post #21
aswanson wrote: post #9

So I'm hearing the " the dollar is over, throw everything into gold, fiat money is doomed" in other forums. Can anyone give some conterpoints to that narrative?

It doesn't really need much of a counterpoint, given how silly it is. Regarding the USD, the same doom cults say the same things during every major global problem / event / disaster going back generations. The dollar was supposed to go away with the great recession; the dollar was supposed to go away with the intense inflatation of the 1970s; the dollar was supposed to go away with Nixon's abandonment of what was lef…

> the dollar was supposed to go away with Nixon's abandonment of what was left of the gold standard; the dollar was supposed to be doomed with FDR's various moves.

The value of the dollar in 1968 was - roughly - (1/40)th of an ounce of gold. The dollar today is roughly (1/1660)th of an ounce of gold.

That is a >95% reduction in value over less than a lifetime. The people who argued the dollar was going to undergo intense inflation would probably be confused about why people argue they were wrong. Some of the young ones (~30 in the 1970s) are probably still alive to argue that point although not on HN. Anyone who stuck with gold rather than dollars when Nixon closed the gold window has been making ~7.7% per annum nominal investment return from holding on to a rock.

Re: Federal Reserve balance sheet trends

#92

Post by laurus »

One of the biggest things confusing people about how public finance works is that everyone is focused on the Fed rather than the Treasury.

A good aspect of MMT is that it explains how the Treasury spending more than it takes in in taxes means more money is created into the economy than is deleted out of the economy. This is the more important thing to focus on.

Some of the MMT professors also do a good job explaining how QE (quantitative easing) doesn't create new net financial assets into the system, it just shifts around assets in accounts at the Fed.

All this focus on the Fed seems counterproductive.

Re: Federal Reserve balance sheet trends

#93

Post by freeMoneySry »

laurus wrote: post #92

One of the biggest things confusing people about how public finance works is that everyone is focused on the Fed rather than the Treasury. A good aspect of MMT is that it explains how the Treasury spending more than it takes in in taxes means more money is created into the economy than is deleted out of the economy. This is the more important thing to focus on. Some of the MMT professors also do a good job explaining…

This reminds me of how the Romans supposedly didn't know that printing money would create inflation.

We know MMT is bad long term policy, but politicians in the short term can create favorable economic conditions for the few.

Re: Federal Reserve balance sheet trends

#94

Post by take_a_breath »

laurus wrote: post #92

One of the biggest things confusing people about how public finance works is that everyone is focused on the Fed rather than the Treasury. A good aspect of MMT is that it explains how the Treasury spending more than it takes in in taxes means more money is created into the economy than is deleted out of the economy. This is the more important thing to focus on. Some of the MMT professors also do a good job explaining…

It is rarely mentioned how deficit spending leads directly to private wealth creation. Increased military spending actually means increased outsourcing. It’s a transfer of wealth from the collective (future taxpayers) to the private (contractors and businesses).

Re: Federal Reserve balance sheet trends

#95

Post by roenxi »

RobertoG wrote: post #82
roenxi wrote: post #68

Earlier quoted context omitted.

It is hard to tell if you are supportive or resigned to the eventuality. Just in case it is supportive... MMT relies heavily on the fact that tracing back who is paying for it is so convoluted that its backers can claim nobody is. That isn't true. At any moment there is a fixed pool of real resources that we have to divide up. It is pretty obvious that a lot of those resources should be given to people who will use t…

But MMT it's not a policy, but a model, a description of how the system really already works. For example, many people here is predicting hyperinflation, using the MMT model we can predict that's not going to happen. Many people here are predicting "slave grandsons by public debt", the MMT model tell us that doesn't make sense. >>"MMT relies heavily on the fact that tracing back who is paying for it is so convoluted…

>> "MMT relies heavily on the fact that tracing back who is paying for it is so convoluted that its backers can claim nobody is" > I don't know what that means.

Lets jump over the the Wiki page on MMT where it has a helpful comparison to Keynesian economics [0]. First line in that table:

Keynesian: Advocates taxation and issuing bonds (debt) as preferred methods for funding government spending.

MMT: Emphasizes that taxation and debt issuance are not required to fund spending.

Under the Keynesian model I can tell who is paying for government activity - taxpayers and lenders. I can also work out how much, by comparing how much tax they pay or how much they lend. It is reasonably transparent about who the government is distributing resources away from (net taxpayers, current lenders) and towards (net tax receivers, people who are enjoying the latter stages of a bond where the interest is payed back). People could have claimed resources; then they were taxed/saved so they didn't.

How do I do that under the MMT model where neither of those things are necessary? Who is the government distributing resources away from? How do I figure that out? I know where they are going. Where do they come from? When we debate MMT inspired ideas, how will we figure out who will be worse off in real terms and in what proportion?

[0] https://en.wikipedia.org/wiki/Modern_Monetary_Theory#Compari...

PS.

> But MMT it's not a policy, but a model

People aren't interested in MMT because it is a neat model; but because if we use that model then it becomes very hard to explain that policies are wasteful uses of time and stuff. It is very easy to make a taxpayer understand why government waste is bad. Quite hard to make people take an interest when nobody knows if they are net givers or takers.

Re: Federal Reserve balance sheet trends

#96

Post by xiphias2 »

wil421 wrote: post #85
aswanson wrote: post #9

So I'm hearing the " the dollar is over, throw everything into gold, fiat money is doomed" in other forums. Can anyone give some conterpoints to that narrative?

I’ve been hearing the same exact thing, minus bitcoin/fiat money comment, since the 2000 crash. The dollar is doomed, China’s going to collapse the dollar, buy gold, buy non-fiat money. Buy an index fund and wait I say.

And they were right. Gold overperformed S&P with dividends reinvested over the last 20 years, and I don't expect this trend stopping.

Re: Federal Reserve balance sheet trends

#97

Post by anoraca »

_gx90 wrote: post #67
Suncho wrote: post #62

What matters isn't the size of the Fed's balance sheet or what it contains. The Fed's balance sheet is "invisible" to the private-sector economy. This expansion of their balance sheet is simply a reflection of the stimulus we're doing. When the Fed expands their balance sheet, what they're doing is replacing private-sector assets with liquid cash. Given that the stimulus is appropriate for the economy, this is all fi…

>When the Fed expands their balance sheet, what they're doing is replacing private-sector assets with liquid cash. Given that the stimulus is appropriate for the economy, this is all fine. It's not anything that future generations have to "pay back." And it's not going to cause a collapse of the dollar. This is simply not true. The Fed is buying assets at a premium (otherwise counterparties wouldn't sell the assets t…

So, in your opinion, the only two possible outcomes are extreme cases that are bad? That seems like hyperbole to me.

Re: Federal Reserve balance sheet trends

#98

Post by thomashobohm »

neffy wrote: post #90
mariojv wrote: post #86

Earlier quoted context omitted.

I'm not saying I agree or disagree given mild inflation trends over the past decade, but how long do you think inflation takes to really get in gear if you're right? We experienced deflation last month according to the consumer price index despite fiscal stimulus and Fed buying assets. [0] The consumer price index is definitely flawed. However, one thing I've heard is that the massive drop in demand and velocity of m…

It's complicated. Hyperinflation occurs generally when the banking system's regulation is gets out of control and goes into a lending/money creation spiral. That can happen very quickly - within several month. All things considered what's more likely to happen at the moment though is a monetary implosion, as massive debt defaults occur destroying the money in the banking system. Which is why people are muttering abou…

This is inaccurate; most economists think we're most likely to see deflation over the next several months as demand collapses. Considering the position of the dollar, a "monetary implosion" like you're describing is still exceedingly unlikely.

Re: Federal Reserve balance sheet trends

#99

Post by IanDrake »

neffy wrote: post #90
mariojv wrote: post #86

Earlier quoted context omitted.

I'm not saying I agree or disagree given mild inflation trends over the past decade, but how long do you think inflation takes to really get in gear if you're right? We experienced deflation last month according to the consumer price index despite fiscal stimulus and Fed buying assets. [0] The consumer price index is definitely flawed. However, one thing I've heard is that the massive drop in demand and velocity of m…

It's complicated. Hyperinflation occurs generally when the banking system's regulation is gets out of control and goes into a lending/money creation spiral. That can happen very quickly - within several month. All things considered what's more likely to happen at the moment though is a monetary implosion, as massive debt defaults occur destroying the money in the banking system. Which is why people are muttering abou…

You can print money indefinitely and not cause inflation as long as there is an equal demand for what you're printing.

USD demand is very high globally and domestically right now. Let's hope that doesn't change over night.

Re: Federal Reserve balance sheet trends

#100

Post by walleeee »

jrockway wrote: post #24
LatteLazy wrote: post #2

Til, People are more than happy to sell their children for a slightly cheaper mortgage as long as you dress it up correctly.

I think this has always been the way we've paid for infrastructure. I remember reading an article about Japan. They've stopped taking on massive infrastructure projects, because the population isn't growing -- they don't want immigrants and people aren't having kids anymore. Without a future tax base to pay for infrastructure, they can't build it anymore. So things like the Tokyo subway system are "done"; no money wi…

> There is no reason to believe that 2120 won't be just as good as long as we keep investing.

Only if you squint _really_ hard, have near-religious faith in technological advancement, and ignore all the ways we're making the planet increasingly difficult to live on.

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