Federal Reserve balance sheet trends • Hacker News Board

Re: Federal Reserve balance sheet trends

#221

Post by SpaceRaccoon » Thu, Apr 23, 2020, 6:37 PM UTC

fbonetti wrote: post #214

RobertoG wrote: post #169

Earlier quoted context omitted.

>>"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…

> Printing money does not create goods and services - it merely decreases the value of each dollar relative to everything else.

Consider that during a recession, factories have surplus capacity to produce more goods. But people don't have money to spend, so the factories don't use that existing capacity, or increase their capacity.

Printing money can stimulate demand and thus increase production of goods.

> 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.

Well, they haven't created an infinite amount (yet). What if the demand for your watches grows as fast as your machine can produce them?

> why does the monetary base increase?

Has inflation kept up with the growth of the money supply?

Re: Federal Reserve balance sheet trends

#222

Post by _curious_ » Thu, Apr 23, 2020, 6:50 PM UTC

OscarCunningham wrote: post #164

_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…

> 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?? This is a good question. The answer is that the virus and lockdown are currently causing lots of deflation. So the Fed needs to cause lots of inflat…

"Personally I suspect the the Fed has undershot and we'll see net deflation over this year and the next."

And then what happens?

Re: Federal Reserve balance sheet trends

#223

Post by OscarCunningham » Thu, Apr 23, 2020, 7:05 PM UTC

_curious_ wrote: post #222

OscarCunningham wrote: post #164

Earlier quoted context omitted.

> 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?? This is a good question. The answer is that the virus and lockdown are currently causing lots of deflation. So the Fed needs to cause lots of inflat…

"Personally I suspect the the Fed has undershot and we'll see net deflation over this year and the next." And then what happens?

Depends how bad the virus is.

Re: Federal Reserve balance sheet trends

#224

Post by laurus » Thu, Apr 23, 2020, 7:08 PM UTC

fbonetti wrote: post #214

RobertoG wrote: post #169

Earlier quoted context omitted.

>>"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…

> Inflation is caused by additional dollars chasing the same number of goods.

But if there's a fall in aggregate demand at a given price level, there are _fewer_ dollars chasing the same number of goods for a period of time. So if government spending is greater than taxation for that given period, it doesn't necessarily cause inflation.

> the bank exchanges an asset (like a treasury) in exchange for reserves (base money)

The "monetary base" increases because of the way they define the monetary base. In the old days, the money in reserve accounts was convertible into gold, and the money in the Treasury bond accounts wasn't, so they count the money in the reserve accounts as part of the "monetary base" but not the money in the Treasury bond accounts.

Re: Federal Reserve balance sheet trends

#225

Post by wegs » Thu, Apr 23, 2020, 7:13 PM UTC

TacticalTable wrote: post #197

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…

Assuming this comes to pass, what would the optimal move be to protect savings from inflation? Is this where Gold comes in handy?

Hard to say. It's easy to identify safe investments, but if you look at markets, money has flooded there already. People get paid to think about this sort of thing day-in-day-out.

People need food, shelter, and medicine, so those are well inflation-protected. But housing prices would collapse if everyone is unemployed for long. Food producers may get sued of COVID19 outbreaks which are happening at plants already (essential workers, no PPE). And hospitals may be overloaded for a long, long time in ways which are quite complex.

And you can't eat gold. It's as fiat as anything else.

We're looking at a potential major collapse. It's hard to shield yourself from that.

Education is always a good investment, I guess. Schools are desperate for students and tuition, and not a bad place to weather a crisis.

Re: Federal Reserve balance sheet trends

#226

Post by skrtskrt » Thu, Apr 23, 2020, 8:07 PM UTC

esoterica wrote: post #220

skrtskrt wrote: post #212

Earlier quoted context omitted.

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…

I think it's a bit more complex than this. No, you can't magically create a yuppie utopia in the middle of the Southside, but you can start on the northwest side and expand it just a couple blocks west, then a few more blocks west. It's a coordinated effort from the large-scale developers and the city - look at Lincoln Yards for the most large-scale and egregious example.

Housing supply absolutely needs increased, but we must require developers to build mixed-income housing. The wealthy developers can afford to leave many units empty to maintain the luxury cache of the building or area. The relationship between supply and price in housing is not that sweet sweet smooth curve - it's lumpier than that in reality.

Additionally while the increase in supply can hurt your local landlords, it can also raise the average income of the clientele of an area, which then benefits them. In practice these landlords have not been staunch opponents of all the new luxury buildings.

Re: Federal Reserve balance sheet trends

#227

Post by fbonetti » Thu, Apr 23, 2020, 8:37 PM UTC

laurus wrote: post #224

fbonetti wrote: post #214

Earlier quoted context omitted.

> 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…

> Inflation is caused by additional dollars chasing the same number of goods. But if there's a fall in aggregate demand at a given price level, there are _fewer_ dollars chasing the same number of goods for a period of time. So if government spending is greater than taxation for that given period, it doesn't necessarily cause inflation. > the bank exchanges an asset (like a treasury) in exchange for reserves (base mo…

> But if there's a fall in aggregate demand at a given price level, there are _fewer_ dollars chasing the same number of goods for a period of time. So if government spending is greater than taxation for that given period, it doesn't necessarily cause inflation.

I actually completely agree, but with a caveat. It may not cause inflation in terms of this years price level being higher than last years price level, but it will cause a decline in the purchasing power of the dollar. For example, let's say in the absence of intervention the price level would fall by 2%, but with intervention the price level would stay the same. That's still a 2% decline in purchasing power.

> The "monetary base" increases because of the way they define the monetary base.

The monetary base is defined as the sum of all currency (including coin) plus bank deposits. It increases or decreases completely at the Fed's discretion, because the Fed has the unique ability to create reserves. This isn't some semantic trickery.

Re: Federal Reserve balance sheet trends

#228

Post by esoterica » Thu, Apr 23, 2020, 8:51 PM UTC

skrtskrt wrote: post #226

esoterica wrote: post #220

Earlier quoted context omitted.

> 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…

I think it's a bit more complex than this. No, you can't magically create a yuppie utopia in the middle of the Southside, but you can start on the northwest side and expand it just a couple blocks west, then a few more blocks west. It's a coordinated effort from the large-scale developers and the city - look at Lincoln Yards for the most large-scale and egregious example. Housing supply absolutely needs increased, bu…

> but you can start on the northwest side and expand it just a couple blocks west, then a few more blocks west.

Again, you are confusing cause and effect. The luxury apartments are popping up because of rising demand and rising prices; they are not the cause the rising prices. San Francisco refuses to build new housing stock and rents are still soaring there because people just bid up the prices of crack shacks.

> The wealthy developers can afford to leave many units empty to maintain the luxury cache of the building or area.

That is completely false. Real estate developers don't intentionally leave a large fraction their buildings empty to project an image of luxury. No renter is going to pay 2x as much rent because they see that the building is half empty and they think that makes it more exclusive. If they wanted an excuse to pay 2x the rent they would just get a larger apartment or move to a more expensive zip code. Deliberately leaving part of a building empty would be an extraordinarily financially dumb move. If a building is substantially empty then the developers screwed up their market research and are losing money on the project.

> Housing supply absolutely needs increased, but we must require developers to build mixed-income housing.

Building luxury housing frees up existing cheaper housing stock for lower income households. You don't have to build cheap housing to make more cheap housing available. Blocking the construction of luxury housing is counter-productive because it just means people will bid up worse housing stock.

Re: Federal Reserve balance sheet trends

#229

Post by laurus » Thu, Apr 23, 2020, 10:11 PM UTC

fbonetti wrote: post #227

laurus wrote: post #224

Earlier quoted context omitted.

> Inflation is caused by additional dollars chasing the same number of goods. But if there's a fall in aggregate demand at a given price level, there are _fewer_ dollars chasing the same number of goods for a period of time. So if government spending is greater than taxation for that given period, it doesn't necessarily cause inflation. > the bank exchanges an asset (like a treasury) in exchange for reserves (base mo…

> But if there's a fall in aggregate demand at a given price level, there are _fewer_ dollars chasing the same number of goods for a period of time. So if government spending is greater than taxation for that given period, it doesn't necessarily cause inflation. I actually completely agree, but with a caveat. It may not cause inflation in terms of this years price level being higher than last years price level, but i…

Assuming that the fall in aggregate demand will last for several time periods, in the absence of intervention, the companies lay off part of their workforce, since now they don't need to produce as much per time period. So now unemployment is up and overall output is lower. By cutting output, the companies don't necessarily have to cut prices. In short: the lack of intervention doesn't necessarily lead to a fall in the price level.

The point of saying that the Treasury bond accounts aren't counted as part of the monetary base while the reserve accounts are is that it doesn't really matter which account your money is in at the Fed. My original comment was pointing out that QE just moves reserves from one account to the other and that this has little effect on overall economic activity because lending by private banks isn't reserve constrained (MMT people do a good job explaining this as well).

Re: Federal Reserve balance sheet trends

#230

Post by roenxi » Fri, Apr 24, 2020, 12:46 AM UTC

AnimalMuppet wrote: post #216

roenxi wrote: post #91

Earlier quoted context omitted.

> 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.

People were saying that moving off the gold standard would destroy the value of the dollar. They were not incorrect. After moving off the peg the dollar has effectively lost all its value.

The major thing they got wrong was thinking that people would stop using it after it lost whatever % of its value it did. 97% or somesuch so far. Turns out not.