Federal Reserve balance sheet trends • Hacker News Board

Re: Federal Reserve balance sheet trends

#211

Post by AnimalMuppet » Thu, Apr 23, 2020, 5:15 PM UTC

RobertoG wrote: post #109

roenxi wrote: post #95

Earlier quoted context omitted.

>> "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…

>>" 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.

That is not at all what roenxi is saying. That is what roenxi is saying MMT is saying, except for the "smaller government" part.

It also is you putting (incorrect) words in someone else's mouth, which is very much not cool.

It is also coming somewhat close to a personal attack (since many of us consider lying to be immoral), which is against site guidelines.

Re: Federal Reserve balance sheet trends

#212

Post by skrtskrt » Thu, Apr 23, 2020, 5:21 PM UTC

esoterica wrote: post #199

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…

> So the Fed economists keep saying "wow inflation is so low even after we pump gazillions of dollars in during QE", while ignoring the fact that easy money has lead to massive multinationals consolidating control of real estate and jacking prices up. This is not remotely grounded in fact. The majority of real estate is controlled by homeowners and small-time landlords, not massive multinationals. Landlords don't hav…

If you only look at home rentals, yes corporations make up less than 10% of ownership. But even the small percentage of ownerships really affect things, in Chicago we can see it has repeatedly taken just a few new luxury high rises to blow up cost of living in entire neighborhoods - it has a follow-on gentrifying effect where stores rush in to serve the new monied residents and the people living there can no longer afford to participate in their local micro-economy.

Again, real, actual lived experiences tell the store more than the super-super high level macro numbers might suggest.

There's still the effects on non-home real estate too, in which there is significant consolidation:

https://cxre.co/houston/commercial-property-management/the-b...

"During the past ten to twelve years, Blackstone has grown tremendously. Since going public in 2007, it has quadrupled in size. On top of that, Blackstone’s real estate division has exploded from a $17.7B venture to a $100B portfolio. According to BizNow, since 2009, it has spent more than $50 billion on commercial real estate. In addition, Blackstone closed a real estate fund worth about $16B in 2015. As a result, Blackstone now has the crown of ‘Largest Real Estate Owner in the World.’ Business Insider has even called the group’s Chairman and CEO Steve Schwarzman, ‘America’s landlord.’"

Re: Federal Reserve balance sheet trends

#213

Post by AnimalMuppet » Thu, Apr 23, 2020, 5:23 PM UTC

xiphias2 wrote: post #139

Anon1096 wrote: post #126

Earlier quoted context omitted.

Gold is currently lower than it was at its peak and subsequent crash in 2012. There's no evidence it will ever come back to those all time highs, and definitely not fast enough to outpace total market investments. There's no "trend" to see here.

Of course it is lower then it's peak, that's why it's called a peak. It's true for every asset. At the same time good luck finding a real gold bar at that price right now when COMEX and LBMA just added unknown, secret ,,market makers'' to ,,increas liquidy'' of the futures contracts. There are lots of strange things going on right now.

OK, but the peak was 8 years ago. So you can say that gold outperformed the S&P over 20 years. But you can't say that over any span less than 8 years, and maybe not even over 10. So, when you say "I don't expect this trend stopping", I see a trend that already stopped - that stopped 8 years ago, in fact.

Re: Federal Reserve balance sheet trends

#214

Post by fbonetti » Thu, Apr 23, 2020, 5:24 PM UTC

RobertoG wrote: post #169

fbonetti wrote: post #160

Earlier quoted context omitted.

> 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. This is one of the most absurd claims of the supposedly "descriptive" MMT. Taxation does not delete money from the economy. When the federal government collects taxes, it doesn't take that mone…

>>"This is one of the most absurd claims of the supposedly "descriptive" MMT. Taxation does not delete money from the economy. When the federal government collects taxes, it doesn't take that money and burn it in a giant pit. It turns around and immediately spends that money." I didn't know that idea was so polemic. So, what you are saying is that government deficits are inflationary because they add money to the eco…

> So, what you are saying is that government deficits are inflationary because they add money to the economy, but, on the other hand, government surplus don't retire money from the economy?

Honestly I don't know what point you're trying to make, or what deficits or surpluses have to do with anything. A deficit or surplus is merely the delta between total revenues and an arbitrarily defined budget.

Inflation is caused by additional dollars chasing the same number of goods. Printing money does not create goods and services - it merely decreases the value of each dollar relative to everything else. If I had a machine that could create an unlimited amount of gold at zero cost, the price of gold would approach zero if I made and sold enough of it. I don't know why you would think dollars would be any different.

> Yes, but the assets the Fed buy (when practicing QE) are in the accounts of the commercial banks in the Fed. After buying them, those assets are not there anymore, and, instead there is money (1). And money is basically a government bond that pay 0% interest.

Yes, the bank exchanges an asset (like a treasury) in exchange for reserves (base money). The question you need to ask yourself is, where did those reserves come from? Another question you need to ask is, when Fed engages in QE, why does the monetary base increase?

Re: Federal Reserve balance sheet trends

#215

Post by nybble41 » Thu, Apr 23, 2020, 5:25 PM UTC

samsonradu wrote: post #180

api wrote: post #135

Earlier quoted context omitted.

> It's not anything that future generations have to "pay back." I really wish the term "debt" were not used in these contexts. This type of "debt" is fundamentally different from private sector debt or other ordinary forms of debt. In this context the term is being used to refer to an accounting construct that looks like debt, but the meaning of this particular accounting entry is completely different. Using this ter…

> This type of "debt" is fundamentally different from private sector debt or other ordinary forms of debt. It depends. If you are Lebanon and borrowing USD it’s pretty much like a corporate debt and future generations are paying it back. However, if you can print the world’s reserve currency while borrowing in it at the same time then there are different terms.

In the end it's still a debt. The nominal value in USD may not be all that important, since the Fed can manipulate it more or less at will, but you're still borrowing productivity from the future—by consuming capital—and that debt will be repaid one way or another.

Re: Federal Reserve balance sheet trends

#216

Post by AnimalMuppet » Thu, Apr 23, 2020, 5:30 PM UTC

roenxi wrote: post #91

adventured wrote: post #21

Earlier quoted context omitted.

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 int…

Yes, but wasn't gold still pegged to the dollar in 1968? That means that the comparison is artificial, because none of the inflation from 1935 (or whenever the price was set to $35/oz) to 1968 has been allowed to show up in the gold price.

Re: Federal Reserve balance sheet trends

#217

Post by AnimalMuppet » Thu, Apr 23, 2020, 5:33 PM UTC

fallingfrog wrote: post #36

The markets now firmly believe that any real reductions in asset prices are impossible. The fed will always rescue them with bailouts. That’s Just incredibly dangerous and can only lead, in one or two more cycles, to the collapse of the US dollar. That sounds incredible but it we keep on this way I just don’t see any other way this could end.

I see a 30% drop in the Dow in the last two months. I see a very real reduction in asset prices, here in concrete reality.

You could argue that that wasn't a real reduction, that a real reduction would be 50% or some other number. If that is your argument, it looks to me like moving the goalposts.

Re: Federal Reserve balance sheet trends

#218

Post by xiphias2 » Thu, Apr 23, 2020, 5:41 PM UTC

AnimalMuppet wrote: post #213

xiphias2 wrote: post #139

Earlier quoted context omitted.

Of course it is lower then it's peak, that's why it's called a peak. It's true for every asset. At the same time good luck finding a real gold bar at that price right now when COMEX and LBMA just added unknown, secret ,,market makers'' to ,,increas liquidy'' of the futures contracts. There are lots of strange things going on right now.

OK, but the peak was 8 years ago. So you can say that gold outperformed the S&P over 20 years. But you can't say that over any span less than 8 years, and maybe not even over 10. So, when you say "I don't expect this trend stopping", I see a trend that already stopped - that stopped 8 years ago, in fact.

Sure, you're both right, I didn't really explain why I think it's we're in the part of the business cycle where gold performs better.

As these cycles take a long time, it's better to look at long term charts, like this:

https://www.macrotrends.net/1378/dow-to-gold-ratio-100-year-...

Gold is an asset that was able to keep its value for 5000 years (unlike fiat currencies), and it has to be mined, it can't just be created in an excel spreadsheet in the FED. If you put these things together, it makes sense, that having a new high every few years is normal (just like with stocks).

Gold performs well in highly inflationary environments, so the question is whether the FED stops printing money, or it will just print much more than it did recently (about 4T). To me it looks like it just has gotten started.

Re: Federal Reserve balance sheet trends

#219

Post by jazzyk » Thu, Apr 23, 2020, 6:01 PM UTC

j15t wrote: post #202

legolas2412 wrote: post #192

Earlier quoted context omitted.

One thing i dont understand is why is federal reserve so involved with stock markets, first propping them up and then panicking if it crashes. The federal reserve should only be concerned about the economy right?

The Fed is not focused on the stock market. When they improve the status of the economy through monetary policy, they indirectly improve the value of publically listed companies. This makes sense, because companies are the central entities in the economy. I don't know how the Fed could improve the state of the economy without affecting the prices of shares.

Take a look at December 2018. There was no pandemic. The Fed tried to very slowly reduce its balance sheet. The stock market threw a major tantrum (by dropping 20% or so) and voila, the Fed reversed its course.

The same in 2016, and other times

How can you say they are not focused on the stock market? They are primarily focused on propping up the markets.

Re: Federal Reserve balance sheet trends

#220

Post by esoterica » Thu, Apr 23, 2020, 6:15 PM UTC

skrtskrt wrote: post #212

esoterica wrote: post #199

Earlier quoted context omitted.

> So the Fed economists keep saying "wow inflation is so low even after we pump gazillions of dollars in during QE", while ignoring the fact that easy money has lead to massive multinationals consolidating control of real estate and jacking prices up. This is not remotely grounded in fact. The majority of real estate is controlled by homeowners and small-time landlords, not massive multinationals. Landlords don't hav…

If you only look at home rentals, yes corporations make up less than 10% of ownership. But even the small percentage of ownerships really affect things, in Chicago we can see it has repeatedly taken just a few new luxury high rises to blow up cost of living in entire neighborhoods - it has a follow-on gentrifying effect where stores rush in to serve the new monied residents and the people living there can no longer a…

> If you only look at home rentals, yes corporations make up less than 10% of ownership. But even the small percentage of ownerships really affect things, in Chicago we can see it has repeatedly taken just a few new luxury high rises to blow up cost of living in entire neighborhoods - it has a follow-on gentrifying effect where stores rush in to serve the new monied residents and the people living there can no longer afford to participate in their local micro-economy.

You are confusing cause and effect. The luxury high rises are the result of rising demand and rising prices, not the cause. If you could magically cause prices to increase by building luxury apartments, you would see luxury apartments sprouting up all over the impoverished parts of the South side. But you don't, because the demand is not there. If you stop luxury apartments from being built in desirable neighborhoods and desirable cities, people will just bid up the prices of crappy older housing stock and drive poorer people out anyway (see: San Francisco).

Building new housing decreases the price of existing housing by expanding supply. It does not increase it. People who have a vested interest in seeing housing costs go up (landlords, existing homeowners) understand that fact, which is why NIMBYs keep voting against development. Unfortunately many people who do not want housing costs to go up do not understand the basic economic fundamentals and are motivated by reflexive hate of wealthy developers, so they sabotage their own interests by voting against new housing to the delight of their landlords.