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Federal Reserve balance sheet trends

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Re: Federal Reserve balance sheet trends

#231

Post by kyuudou »

_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 only way this ends is either a depression the scales of which we've never seen in history before (which would liquidate and clear out bad businesses), or a hyperinflationary collapse of the U.S. dollar whereby more and more money is injected to prop everything up. I'm betting on the latter as the former is too politically inconvenient.

Or, like last time, a global war.

Also, I cannot emphasize more fervently your accurate correction here:

>Future generations pay this back not through taxes but through inflation.

It's a form of theft, really. Increasing the velocity of money is important to Keynesians and the faster that stuff degrades in value the faster those who are paying attention want to get rid of it in tangible or better-performing assets rather than, say, saving it long-term for something like capitalizing a small business.

And, whether an individual or organization, taking out loan after loan and not worrying so much about bankruptcy is easier to tolerate since sooner or later the gambling will pay off and it'll be easier to pay off in the future with easy money. When a dozen eggs cost 50$, 100,000$ in student loans will be easier to pay off.

I read something today about how China is gambling on the dollar collapsing and have been hoarding lots of gold in anticipation of some kind of at least partially gold-backed currency that's likely to be digital.

Re: Federal Reserve balance sheet trends

#232

Post by fallingfrog »

AnimalMuppet wrote: post #217
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.

Right but my point is, as soon as it happened the fed went into a panic and printed trillions of dollars and started buying junk bonds, giving the impression that they will do whatever it takes to make the market not drop. No matter the cost. And the market shot back up even though there are 26 million people who just lost their jobs. But you know, this is still an unfolding story so who knows, maybe all the free loans in the world won’t help. We’ll find out.

Re: Federal Reserve balance sheet trends

#233

Post by [deleted] »

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.

[deleted]

Re: Federal Reserve balance sheet trends

#234

Post by jchook »

CaptArmchair wrote: post #142
jchook wrote: post #123

Earlier quoted context omitted.

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...?

Austrian economics? Scientific method?

Re: Federal Reserve balance sheet trends

#235

Post by [deleted] »

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…

[deleted]

Re: Federal Reserve balance sheet trends

#236

Post by AnimalMuppet »

fallingfrog wrote: post #232
AnimalMuppet wrote: post #217

Earlier quoted context omitted.

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.

Right but my point is, as soon as it happened the fed went into a panic and printed trillions of dollars and started buying junk bonds, giving the impression that they will do whatever it takes to make the market not drop. No matter the cost. And the market shot back up even though there are 26 million people who just lost their jobs. But you know, this is still an unfolding story so who knows, maybe all the free loa…

Or, maybe you're right, and the market would have fallen a lot further (or at least not recovered) if the Fed had done nothing. And, on that one, we won't even find out, because that's not what the Fed did.

Re: Federal Reserve balance sheet trends

#237

Post by AnimalMuppet »

roenxi wrote: post #230
AnimalMuppet wrote: post #216

Earlier quoted context omitted.

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.

I would say that the dollar had already lost a bunch of its value by 1968. It's just that the gold peg hid that when you measure the value of the dollar in gold. But if you look at inflation during the 1950s, the dollar was losing value then as well.

Now, sure, the dollar lost a lot of value between 1968 and now. I don't deny it. But it also lost value between 1935 and 1968. Measuring the value of the dollar in terms of gold makes it look like all that happened after 1968, which makes the rate look higher than it actually was.

Re: Federal Reserve balance sheet trends

#238

Post by perl4ever »

skrtskrt wrote: post #204
TheFlyingFish wrote: post #193

Earlier quoted context omitted.

Just anecdotally, I wouldn't be surprised if a Camry really were "more valuable" (as measured by some sort of ideal fixed value-marker not subject to inflation) than in 1990. I seem to recall when I was growing up that the average expected lifetime of a car if well-maintained was about 100k miles; now it seems to be about 200k. Housing may be a more debatable case, though.

I agree that’s an opinion many people familiar with cars would share. However the usefulness of that improvement is going to be a lot lower to someone who just needs a car to get somewhere rather than someone who can afford to buy a car with the long view of how it will affect their finances over many years. The “purchasing power of the dollar”, even if you accept the accuracy of hedonic adjustments, is an extremely…

"the usefulness of that improvement is going to be a lot lower to someone who just needs a car to get somewhere rather than someone who can afford to buy a car with the long view of how it will affect their finances over many years."

I don't understand how a longer lifespan could not affect TCO regardless of how long you keep your car or what portion of its life you use. What does it mean to say people can't afford to spend less money?

Re: Federal Reserve balance sheet trends

#239

Post by perl4ever »

jazzyk wrote: post #219
j15t wrote: post #202

Earlier quoted context omitted.

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.

If you think they are propping up the stock market, then it doesn't make sense to be worried about inflation. Inflation would devastate the stock market.

Re: Federal Reserve balance sheet trends

#240

Post by Rury »

AnimalMuppet wrote: post #237
roenxi wrote: post #230

Earlier quoted context omitted.

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.

I would say that the dollar had already lost a bunch of its value by 1968. It's just that the gold peg hid that when you measure the value of the dollar in gold. But if you look at inflation during the 1950s, the dollar was losing value then as well. Now, sure, the dollar lost a lot of value between 1968 and now. I don't deny it. But it also lost value between 1935 and 1968. Measuring the value of the dollar in terms…

You have to fairly compare time frames. If you're going to compare 1935 to now for dollars, then you need to also do so for gold.

But regardless, when people say "collapse of the dollar", they're not necessarily saying the dollar is going to vanish. They're saying it's going to lose its value. Whichever part of history you look at, history shows it's a poor store of value as we just print more of it than goods. Nearly any asset is going to look good next to it if we continue the status quo...

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