So how does this work? The federal reserve prints more USD and buys stuff with it increasing their balance sheet?
Federal Reserve balance sheet trends
111–120 of 266 posts
Re: Federal Reserve balance sheet trends
#112What 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…
I don't think the problem at the current time is inflation - it's deflation. There's less money chasing the same amount of goods and services. That was the case during the Great Depression - and the Fed exacerbated things at that time by not intervening in controlling the money supply because they were bound by rules which prevented them from doing so.
If inflation suddenly increases, then the Fed has tools to combat that. They can sell off some of their balance sheet or raise interest rates to reduce the amount of money in the system. Inflation only occurs because there's too much money chasing goods and services.
Re: Federal Reserve balance sheet trends
#113What 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…
"Given that the stimulus is appropriate for the economy, this is all fine."
Very casually assumptive, but ok, let's go with it...
"It's not anything that future generations have to "pay back. And it's not going to cause a collapse of the dollar."
If this is true, then what's the catch? What then are the adverse affects of the Fed printing money? Does it not inadvertently devalue the dollar? Why not double, triple, or quadruple the "stimulus" if it is, as you claim, appropriate and without any noted trade-offs??
Re: Federal Reserve balance sheet trends
#114Has anyone any idea what that means to the average joe? How to protect one's purchasing power? If the government can give you free money (1200$ checks), it also has the power to take everything away from you, right?
Buy the stuff the Fed is propping up - stocks and real estate.
Re: Federal Reserve balance sheet trends
#115This 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…
The Bank of Japan has well above 100% worth of GDP on their books. Considering their structural demographics and adversity to immigration, do you think they'll ever unwind that? That's every developed country's future.
Any meaningful reduction in the Fed's balance sheet is going to be untenable. The Fed will end up picking winners and losers through their actions as a "Deus ex machina" market participant, and due to their lack of any meaningful oversight, I hope they act wisely.
Re: Federal Reserve balance sheet trends
#116Earlier 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…
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…
Re: Federal Reserve balance sheet trends
#117Earlier 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 don't think the problem at the current time is inflation - it's deflation. There's less money chasing the same amount of goods and services. That was the case during the Great Depression - and the Fed exacerbated things at that time by not intervening in controlling the money supply because they were bound by rules which prevented them from doing so. If inflation suddenly increases, then the Fed has tools to combat…
> They can sell off some of their balance sheet or raise interest rates to reduce the amount of money in the system.
The Fed was unable to unwind more than ~$650B out of $4T from their balance sheet in one of the longest expansion periods in US history. How will they do this? This is not a rhetorical question, I am genuinely curious in how people think this will be done if the Federal Reserve itself can't do it (either reducing the balance sheet or influencing the target rate above low single digits).
Re: Federal Reserve balance sheet trends
#118Earlier quoted context omitted.
It's controlled by the US government and the US Treasury receives the proceeds. https://www.federalreserve.gov/faqs/about_14986.htm
Read the last few sentences critically. Each regional federal reserve bank (there are several) is owned by private banks. The profits are merely capped.
The ownership is nothing more than symbolic. They have absolutely no control over the Federal Reserve. They can set no policy, they dictate nothing through the 'ownership.' They receive profits in exchange for participating in the system, it's a lure for drawing in private banking participation.
The profit share ("dividends") the banks receive is trivial, a couple percent of the Fed's profits. Typically 96-98% of profit is sent to the US Treasury.
Re: Federal Reserve balance sheet trends
#119What 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…
"Given that the stimulus is appropriate for the economy, this is all fine." Very casually assumptive, but ok, let's go with it... "It's not anything that future generations have to "pay back. And it's not going to cause a collapse of the dollar." If this is true, then what's the catch? What then are the adverse affects of the Fed printing money? Does it not inadvertently devalue the dollar? Why not double, triple, or…
The GP is saying that the future generations have not to pay back and that the stimulus is necessary now and it will not be inflationary. It's not saying that it's not possible to spend too much and create undesired inflation.
But note that, in the same way it's possible to spend too much, it's possible to spend too little. For some reason there are people who think that is impossible.
Re: Federal Reserve balance sheet trends
#120What 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…
"Given that the stimulus is appropriate for the economy, this is all fine." Very casually assumptive, but ok, let's go with it... "It's not anything that future generations have to "pay back. And it's not going to cause a collapse of the dollar." If this is true, then what's the catch? What then are the adverse affects of the Fed printing money? Does it not inadvertently devalue the dollar? Why not double, triple, or…
Example of the catch of the FED buying financial assets, it increases their value:
Before 1 Google stock was worth 1 Tesla car. After 1 Google stock is worth 2 Tesla cars.
The purchasing power of those who hold financial assets is increasing while for those who don't own financial assets stays the same.