The ballooning money supply may be the key to unlocking inflation in the U.S. • Hacker News Board

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#111

Post by _gx90 » Tue, Oct 13, 2020, 7:18 PM UTC

pedro_hab wrote: post #99

smallnamespace wrote: post #49

The Fed is only creating bank reserves, which does not create more money. Therefore, the Fed has not been printing money. When the Fed buys assets (government bonds, Fannies, etc.) from a bank, the bank gets back 'bank reserves', which are just a number in the bank's Federal Reserve account somewhere. Those reserves can't be lent out. The bank can make no change to its lending, because it's a one-to-one swap (highly…

Isn't the FED at the very least creating money by buying treasuries above the market value? If the FED weren't buying, banks would have to bid the market to sell, lowering the price. Kinda makes the banks whole and also makes the Treasury market higher, lowering rates for the ever increasing US deficit.

They are, the argument that the poster above you put forward is such a tired argument and I really do not understand why people are trying to hide the fact that the Fed is actually creating money out of thin air and buying assets from banks for it. The Fed doesn't technically "print" the Federal Reserve Notes, but for all intents and purposes it is legitimately money that is being created, only digitally. You are entirely correct in your assessment that they are manipulating the market by being an agent with unlimited amounts of cash and can therefore provide options for banks that they otherwise wouldn't have in a free market.

Also bank reserves can be used as collateral for further loans, just because you don't lend out the actual reserves doesn't mean more money isn't being created, it's just done in a roundabout fashion.

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#112

Post by [deleted] » Tue, Oct 13, 2020, 7:18 PM UTC

foota wrote: post #87

toomuchtodo wrote: post #35

Earlier quoted context omitted.

Inflated asset prices means most folks are never going to be able to purchase a home, and equities (which generates wealth with no further effort besides the capital invested, for the most part) will continue to be owned by the wealthiest. Inequality worsens when asset prices increase faster than wages.

This doesn't check out to me (well, the home part does, but I'm not sure we've seen significantly above normal growth there compared to historical norms, outside of hot coastal markets), but for other assets the price doesn't matter, as you can just get a fraction of them or they're split.

[deleted]

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#113

Post by _gx90 » Tue, Oct 13, 2020, 7:19 PM UTC

SonOfThePlower wrote: post #107

JSavageOne wrote: post #95

Earlier quoted context omitted.

Functionally there's little to no difference between what you've described and what is colloquially known as "money printing". You've essentially just redefined "money" to include U.S. treasuries and mortgage-backed securities, and then stated that it's just an asset swap and not money printing. You can use whatever terminology you want, but at the end of the day, the Federal Reserve is creating money out of thin air…

No, FED does not print money - bank reserves are not legal tender. If they had printed money, inflation would have skyrocket. My only question is why banks agree to this deal: exchanging U.S. treasuries for bank reserves (which they only can use as a collateral for lending) ?

Because they are pocketing the difference by arbitraging between the government (who issue the treasuries) and the Fed (who is the ultimate buyer) since the Fed cannot buy treasuries directly from the government. It's just a complicated way for the government to print money and hand it out and in this case banks are able to act as the middleman and earn money on the spread.

It's a disgraceful system that is extremely morally questionable.

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#114

Post by lambdasquirrel » Tue, Oct 13, 2020, 7:20 PM UTC

SonOfThePlower wrote: post #107

JSavageOne wrote: post #95

Earlier quoted context omitted.

Functionally there's little to no difference between what you've described and what is colloquially known as "money printing". You've essentially just redefined "money" to include U.S. treasuries and mortgage-backed securities, and then stated that it's just an asset swap and not money printing. You can use whatever terminology you want, but at the end of the day, the Federal Reserve is creating money out of thin air…

No, FED does not print money - bank reserves are not legal tender. If they had printed money, inflation would have skyrocket. My only question is why banks agree to this deal: exchanging U.S. treasuries for bank reserves (which they only can use as a collateral for lending) ?

It's inflation through other means. You get asset price inflation instead of commodities / consumer goods inflation. It's a slow death rather than a quick one.

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#115

Post by freeone3000 » Tue, Oct 13, 2020, 7:22 PM UTC

SonOfThePlower wrote: post #107

JSavageOne wrote: post #95

Earlier quoted context omitted.

Functionally there's little to no difference between what you've described and what is colloquially known as "money printing". You've essentially just redefined "money" to include U.S. treasuries and mortgage-backed securities, and then stated that it's just an asset swap and not money printing. You can use whatever terminology you want, but at the end of the day, the Federal Reserve is creating money out of thin air…

No, FED does not print money - bank reserves are not legal tender. If they had printed money, inflation would have skyrocket. My only question is why banks agree to this deal: exchanging U.S. treasuries for bank reserves (which they only can use as a collateral for lending) ?

Inflation (in the consumer goods sense) only happens when the value of money goes down for the average person. The price of lettuce isn't going to rise because the fed isn't buying lettuce with faerie money, they're buying securities. And the stock market has gone up and to the right, despite all logical indicators on the ground indicating it should go solidly opposite. Securities are hugely inflated.

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#116

Post by cs702 » Tue, Oct 13, 2020, 7:24 PM UTC

Not an accurate headline. Here's what actually has happened:

* The Fed has doubled (!) the number of assets on its balance sheet by creating new monetary instruments and using a big swath of them to purchase financial assets like treasuries and mortgage backed bonds, helping maintain price stability in those and other financial assets. In fact, the Fed has created more new monetary assets during the past five-plus months than in the entirety of 2008-2009, during the worst of the global financial crisis. Source: https://fred.stlouisfed.org/series/WALCL

* The US Treasury, which must borrow funds or collect taxes in order to spend any money, has increased its spending massively during the pandemic, after the passing of significant tax cuts, so it has been incurring federal deficits as a percent of GDP at the fastest rate since WWII. Source: https://fred.stlouisfed.org/series/GFDEGDQ188S

* Tax collections have started to drop, as many sectors of the economy (restaurants, retail stores, malls, office buildings, hotels, travel companies, etc.) are now no longer profitable and have fired or furloughed millions of people. Source: https://fred.stlouisfed.org/series/W006RC1Q027SBEA (data available only as of Q2)

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#117

Post by RobertoG » Tue, Oct 13, 2020, 7:24 PM UTC

darawk wrote: post #109

smallnamespace wrote: post #49

The Fed is only creating bank reserves, which does not create more money. Therefore, the Fed has not been printing money. When the Fed buys assets (government bonds, Fannies, etc.) from a bank, the bank gets back 'bank reserves', which are just a number in the bank's Federal Reserve account somewhere. Those reserves can't be lent out. The bank can make no change to its lending, because it's a one-to-one swap (highly…

Creating bank reserves absolutely creates money. Bank reserves are the fulcrum around which bank leverage ratios operate. Yes, they can margin treasuries to borrow reserves from other banks, and in that sense, they are fungible. But the total amount of bank reserves in the system at any one time is still what bounds the total amount of money creation that can happen via leverage. Increasing the absolute amount of ban…

New money, enters the economy by two ways: banks lean to households/business or government direct spending. New reserves in the system doesn't create money.

The quantity of reserves in the system limit the quantity of money that the private banks can lend to the real economy (actually, not really, but that's another discussion), but the existence of reserves doesn't make the bank to lean. For the banks to lean, it's necessary that there is demand for credit first.

Because there is not demand for credit, never mind the number of reserves in the system. The central bank have not power to stimulate the economy in this situation, that's the reason central bankers are pushing the governments to spend directly.

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#118

Post by _gx90 » Tue, Oct 13, 2020, 7:25 PM UTC

cs702 wrote: post #116

Not an accurate headline. Here's what actually has happened: * The Fed has doubled (!) the number of assets on its balance sheet by creating new monetary instruments and using a big swath of them to purchase financial assets like treasuries and mortgage backed bonds, helping maintain price stability in those and other financial assets. In fact, the Fed has created more new monetary assets during the past five-plus mo…

>The Fed has doubled (!) the number of assets on its balance sheet by creating new monetary instruments and using some of them to purchase financial assets like treasuries and mortgage backed bonds. In fact, the Fed has created more new monetary assets during the past five months than in 2008-2009, during the worst of the global financial crisis.

This is printing money and it is not inaccurate to say that they have created U.S. Dollars out of thin air to finance their asset-purchases and "lending" (a debt that will never be paid off) to the U.S. government.

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#119

Post by _gx90 » Tue, Oct 13, 2020, 7:28 PM UTC

alexjray wrote: post #40

jlmorton wrote: post #27

Earlier quoted context omitted.

Because the dollars have not been permanently pumped into the economy, and the world has faith that the Fed will shrink its balance sheet. Printing money and lending it out, and then burning the money when it's repaid, is very different than printing money and using it to buy goods and services.

That's a best case scenario and feels overly optimistic. What are the chances it gets fully repaid?

It cannot be repaid, ever, because the interest exceeds the amount of money that is currently in existence, which means they will always have to borrow more money (which is created out of thin air) to service the debt.

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#120

Post by RobertoG » Tue, Oct 13, 2020, 7:28 PM UTC

_gx90 wrote: post #111

pedro_hab wrote: post #99

Earlier quoted context omitted.

Isn't the FED at the very least creating money by buying treasuries above the market value? If the FED weren't buying, banks would have to bid the market to sell, lowering the price. Kinda makes the banks whole and also makes the Treasury market higher, lowering rates for the ever increasing US deficit.

They are, the argument that the poster above you put forward is such a tired argument and I really do not understand why people are trying to hide the fact that the Fed is actually creating money out of thin air and buying assets from banks for it. The Fed doesn't technically "print" the Federal Reserve Notes, but for all intents and purposes it is legitimately money that is being created, only digitally. You are ent…

>>"Also bank reserves can be used as collateral for further loans [..]"

What do you mean by that? I don't think that it how it works.