Federal Reserve balance sheet trends • Hacker News Board

Re: Federal Reserve balance sheet trends

#141

Post by wegs » Thu, Apr 23, 2020, 2:53 PM UTC

rapsey wrote: post #28

wegs wrote: post #18

Earlier quoted context omitted.

I think that's more a disadvantage. If the US starts to inflate too much, it may be dumped as the world's reserve currency. A global run on the dollar could convert modest, manageable inflation into hyperinflation. If dollars are worth 1/2-1/10th of what they are now in three years, that's kind of okay, and in-line with the damage of COVID19. If they are worth 1/1000th, we're looking at a serious, structural collapse…

> If dollars are worth 1/2-1/10th of what they are now in three years, that's kind of okay That is massive inflation.

Yes. It is. It's frighteningly high, but likely necessary: We have a massive crisis. It seems like the least of all evils, unless we somehow are able to act with focused intelligence.

On the one hand: Look at unemployment rates, business failure rates, mortgage defaults, people unable to pay for food/medicine/shelter, or any other economic metrics, and plot even conservative predictions even a month or two out. The economy will be dead very quickly if we don't do something drastic.

On the other hand: If we let it burn: look at COVID19 mortality rates, and multiply by a significant fraction of the US population. You land on numbers greater than WWI casualties, and likely greater than all previous wars combined. Heck, looking at permanent lung damage alone, we're already tanking our economy.

These are exceptional times.

They take exceptional measures.

The metrics I care about are: (1) Structural damage to the economy (layoffs, defaults, bankruptcies, etc.). (2) The number of people working (likely in pandemic-adapted industries) (3) Deaths. To minimize those, we'll either need to be clever or to inflate. So far, we've been really bad at clever.

Re: Federal Reserve balance sheet trends

#142

Post by CaptArmchair » Thu, Apr 23, 2020, 2:55 PM UTC

jchook wrote: post #123

_curious_ wrote: post #113

Earlier quoted context omitted.

"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 Keynesian theory of economics doesn’t exactly have a spotless track record for modeling and predicting outcomes of non-routine interference in the economy.

As opposed to other theories such as...?

Re: Federal Reserve balance sheet trends

#143

Post by cultus » Thu, Apr 23, 2020, 2:56 PM UTC

ravenstine wrote: post #137

cultus wrote: post #133

Earlier quoted context omitted.

The grandparent made a blanket statement that "we know MMT is a bad long term policy" which the other poster was rightly pointing out is wrong. This is a ridiculous blanket statement, and clearly and obviously false. Such arguments don't deserve detailed rebuttals.

That's really not a good way to address blanket statements. Just referring to nebulous "smart people" adds nothing. It doesn't need a detailed rebuttal. Here are some examples of reasonable responses: - How do you know that? - When in history did that happen? - Could you be more specific? None of those require more than one sentence, or implying that the person is too stupid to have an opinion.

The nebulous "smart people" is a good thing to bring up when a tech person is Dunning-Krugering outside of their field.

Re: Federal Reserve balance sheet trends

#144

Post by thomashobohm » Thu, Apr 23, 2020, 2:58 PM UTC

skrtskrt wrote: post #127

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 worth noting that part of the reason that inflation statistics are so "low" is that there's an official adjustment done when things cost more but (supposedly) have increased quality, called a "Hedonic quality adjustment" This adjustment has been made multiple times in recent decades for housing, which is a large part of any given adult's spending. So the Fed economists keep saying "wow inflation is so low even a…

That's not how any of this works; inflation statistics are calculated by the Bureau of Labor Statistic, independently of the Federal Reserve.

There's no conspiracy among Fed economists to try and hide inflation.

Re: Federal Reserve balance sheet trends

#145

Post by skrtskrt » Thu, Apr 23, 2020, 3:01 PM UTC

thomashobohm wrote: post #144

skrtskrt wrote: post #127

Earlier quoted context omitted.

It's worth noting that part of the reason that inflation statistics are so "low" is that there's an official adjustment done when things cost more but (supposedly) have increased quality, called a "Hedonic quality adjustment" This adjustment has been made multiple times in recent decades for housing, which is a large part of any given adult's spending. So the Fed economists keep saying "wow inflation is so low even a…

That's not how any of this works; inflation statistics are calculated by the Bureau of Labor Statistic, independently of the Federal Reserve. There's no conspiracy among Fed economists to try and hide inflation.

I didn't say the Fed calculated it. I did say they reference it to say their policies (or whoever's policies) aren't causing inflation.

When a majority of leading economists subscribe to economic views that don't reflect the lived reality of an average person, it may not be a conspiracy, but the effect (groupthink) is similar.

Re: Federal Reserve balance sheet trends

#146

Post by DiogenesKynikos » Thu, Apr 23, 2020, 3:02 PM UTC

czinck wrote: post #107

_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…

> 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 nev…

> That's not necessarily true

The Fed is driving up the price of junk bonds, so it clearly is true.

Re: Federal Reserve balance sheet trends

#147

Post by thomashobohm » Thu, Apr 23, 2020, 3:03 PM UTC

jkhdigital wrote: post #105

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…

Uh, actually, the notion that the economy has the capacity to provide enough for everyone is a falsifiable statement supported by facts. You can analyze the total amount of resources and the amount of work required to produce them, and figure out how they could be distributed differently. We've known for a long time that, in the US at least, there is enough food, shelter, and healthcare for everyone.

Re: Federal Reserve balance sheet trends

#148

Post by andreilys » Thu, Apr 23, 2020, 3:05 PM UTC

czinck wrote: post #107

_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…

> 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 nev…

The fed is buying junk corporate bonds that would otherwise plummet in value.

Re: Federal Reserve balance sheet trends

#149

Post by andreilys » Thu, Apr 23, 2020, 3:07 PM UTC

thomashobohm wrote: post #98

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…

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.

Most economists also thought we had banished volatility, until 2008 happened.

I wouldn’t put too much trust in that expert class given their track record.

Re: Federal Reserve balance sheet trends

#150

Post by thomashobohm » Thu, Apr 23, 2020, 3:08 PM UTC

ravenstine wrote: post #137

cultus wrote: post #133

Earlier quoted context omitted.

The grandparent made a blanket statement that "we know MMT is a bad long term policy" which the other poster was rightly pointing out is wrong. This is a ridiculous blanket statement, and clearly and obviously false. Such arguments don't deserve detailed rebuttals.

That's really not a good way to address blanket statements. Just referring to nebulous "smart people" adds nothing. It doesn't need a detailed rebuttal. Here are some examples of reasonable responses: - How do you know that? - When in history did that happen? - Could you be more specific? None of those require more than one sentence, or implying that the person is too stupid to have an opinion.

Sorry, let me be clear: by "smart people" I mean economists who have spent their lives studying monetary and fiscal policy and analyzing how it can be used to make the world a better place.

Not sure why the onus is on me to be "reasonable" in my response when we all agree that the person I was replying to was making an entirely unreasonable assertion.