Federal Reserve balance sheet trends • Hacker News Board

Re: Federal Reserve balance sheet trends

#101

Post by thomashobohm » Thu, Apr 23, 2020, 1:31 PM UTC

mrfredward wrote: post #77

_gx90 wrote: post #67

Earlier quoted context omitted.

>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…

>Future generations pay this back not through taxes but through inflation. I don't think that's a fair characterization. Inflation helps people with student loans (salary grows but debt stays the same) and hurts people with retirement accounts full of bonds. Broadly speaking, inflation helps the young (by closing the wealth gap between haves and have-nots).

The actual reason why inflation hurts young people has to do with economic stability and its cascading effects on the economy. A period of significant inflation can wipe out generational mobility. Inflation has a minimal effect on "closing the wealth gap" in comparison and I think it's irresponsible to act like hyperinflation would be a reasonable way to solve economic inequality.

Re: Federal Reserve balance sheet trends

#102

Post by thomashobohm » Thu, Apr 23, 2020, 1:34 PM UTC

neffy wrote: post #89

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…

The Federal Reserve's balance sheet, and its actions matter very much. What is essentially in the process of happening is a massive disconnect between the "operating system" of the economy - the financial system, which is in the process of crashing (bear with it, it's a very slow system it takes a while), and the economy - the computer - which is as you say, essentially fine, but no longer working because... operatin…

That is NOT what M2 means! Have you discounted the value of the ETFs and bonds the Fed has purchased? They're not suddenly valueless.

Re: Federal Reserve balance sheet trends

#103

Post by thomashobohm » Thu, Apr 23, 2020, 1:35 PM UTC

freeMoneySry wrote: post #93

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.

These things are not known, actually. There are people much smarter than you or me that would disagree with your sentiment that "we know MMT is a bad long term policy."

Re: Federal Reserve balance sheet trends

#104

Post by anoraca » Thu, Apr 23, 2020, 1:35 PM UTC

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?

My counterpoint would be: do you think that anonymous comments on the internet are a good source of information? Now that we're living in an age where national governments have large teams of people dedicated to spreading propaganda?

https://en.wikipedia.org/wiki/50_Cent_Party

https://en.wikipedia.org/wiki/Internet_Research_Agency

Re: Federal Reserve balance sheet trends

#105

Post by jkhdigital » Thu, Apr 23, 2020, 1:37 PM UTC

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…

This would make sense if the Fed's newly-created money went directly to households that need it due to economic shutdowns. But it doesn't, it mostly goes to financial institutions. You're confusing the Fed's ability to monetize assets with the Treasury's ability to spend money on whatever it wants.

Also, your statement that our economy has the capacity to provide a decent standard of living to everyone is an article of faith, not some falsifiable statement supported by facts. We don't know if that is true or not.

Re: Federal Reserve balance sheet trends

#106

Post by thedudeabides5 » Thu, Apr 23, 2020, 1:46 PM UTC

IanDrake wrote: post #99

neffy wrote: post #90

Earlier quoted context omitted.

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.

Demand for dollars won't evaporate overnight. The thing about being a reserve currency is in a crisis, the entire levered world is short your currency.

That, combined with the fact that it's not like any major developed economy is doing that much better, means US goods, services and financial assets are still pretty competitive with the rest of the world.

The dollar is up 40% vs the lows of 2008. When DXY is back at 70, it's time to worry about a crack in the dollar reserve system.

https://www.tradingview.com/symbols/TVC-DXY/

Re: Federal Reserve balance sheet trends

#107

Post by czinck » Thu, Apr 23, 2020, 1:46 PM UTC

_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…

> The Fed is buying assets at a premium (otherwise counterparties wouldn't sell the assets to the Fed)

That's not necessarily true, economic transactions aren't necessarily zero-sum. I would assume for most of the assets being sold to the Fed, the banks need liquid cash more than they need the asset and so would be willing to take a haircut.

>The only way this ends is either a depression the scales of which we've never seen in history before[...], or a hyperinflationary collapse of the U.S. dollar

Why specifically do you think this will happen now when it didn't happen post 2008? Sure the scale so far seems bigger, but also the scale of the hit the "real" economy is taking is much bigger. And, in March, when some of these asset purchases had already started, CPI declined by 0.4%.

Re: Federal Reserve balance sheet trends

#108

Post by aazaa » Thu, Apr 23, 2020, 1:47 PM UTC

This will work out fine until it doesn't. At that point, the US will face many "bad or worse" kinds of choices. It will be like the choice we face today: "close the economy or the morgues start overflowing everywhere." Except it will be every day, more or less forever. Inject still more money into the economy or the entire financial system collapses.

Whenever this balance sheet chart shows up, MMT boosters descend to explain why the Fed's balance sheet doesn't matter. It's interest we owe ourselves. Nobody in the real economy looks at that balance sheet when making actual financial decisions, they claim.

I think that misses the point. The point is that since the last financial crisis, the balance sheet has on net expanded. By a lot. When the current crisis hit, the balance sheet shot up from an already elevated level.

To put it another way, consider the size of the balance sheet relative to GDP (~$24 trillion):

https://fred.stlouisfed.org/series/GDP

At the current level, the balance sheet is about 25% of GDP. There's every reason to believe the Fed is far from done. It's bailouts as far as the eye can see at the moment. And those bailouts will be monetized by the Fed. We can't possibly pay for them at the current value of the dollar. Ever.

To the MMT boosters, what happens when the balance sheet approaches 1x GDP? 2x? 5x?

Nobody knows because this experiment has never been tried before. The reserve currency printer is also a net debtor. It runs very high, structural deficits with no end in sight. The currency is completely decoupled from gold, and as recent history shows, possibly industrially-critical commodities like oil.

I'd be very curious to hear from the MMT proponents on what signals they's look for that the Fed's balance sheet actually does matter in the real economy. Things that can only be explained by problems stemming from the size of that balance sheet. Problems whose only cure is a massive reduction in that balance sheet.

Of course, the balance sheet isn't going anywhere. Nor are deficits. When faced with such situations in the past, the answer has been devaluation.

The US did that back in the 70s when it closed the gold window. It will happen again. What the MMT proponents I've seen seem to ignore is what form that devaluation will take given the highly unusual circumstances around which it will be occurring.

Re: Federal Reserve balance sheet trends

#109

Post by RobertoG » Thu, Apr 23, 2020, 1:50 PM UTC

roenxi wrote: post #95

RobertoG wrote: post #82

Earlier quoted context omitted.

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 t…

Well, first, I suspect that Keynes would be ashamed of what post-keynesians have made of his insights.

Anyway, you are implying that the current system is Keynesian, and that there are people advocating to change to a MMT system. But the current system is already MMT.

So, to answer your question, for accountability, you could just keep in place the current way of doing things (or find some alternative) but recognize that "taxation and debt issuance are not required to fund spending". Let's recognize that public debt is irrelevant for instance, and that, yes, deficits can be inflationary, if the economy is already in full utilization but could not be in the proper circumstances.

>>" 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"

So, basically, what you are saying is "let's lie to people" so we can have a smaller government.

They say that naming is one of the hard things of computer science, maybe it's also true for economics. Let's change the name "public debt" for "public investment" and discuss then how much public investment can we afford.

Re: Federal Reserve balance sheet trends

#110

Post by fuzzybear3965 » Thu, Apr 23, 2020, 1:50 PM UTC

mariojv wrote: post #86

_gx90 wrote: post #67

Earlier quoted context omitted.

>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…

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…

I had the same question a few weeks ago! Apparently, the delay between monetary stimulus and the time we'd notice inflation is estimated to be greater than 12 months. I found one of the sources whose abstract I scanned when I had this question[0].

Hedge: I'm not saying it's true or that I've verified any of the research, only saying that economists have studied the effects of central bank stimulus action on inflation rates and the economic response seems to take a while.

[0] https://www.google.com/url?q=https://www.lancaster.ac.uk/sta...