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Banks, QE, and Money-Printing

lynalden.com

201–210 of 249 posts

Re: Banks, QE, and Money-Printing

#201

Earlier quoted context omitted.

> Since inflation is just the price of stuff rising... Inflation literally is money printing. Price increases is not inflation. Price increases can be caused by inflation. Prices can remain nominally the same while money supply has increased. > So, do prices rise just because a certain amount of dollars were added to an economy ? No, certainly not. Which is why the money printing should only happen when the economy i…

> Inflation literally is money printing. Price increases is not inflation. According to who exactly? I encourage you to research this and determine the validity of your assertion, as I can't even find a single person defining it the same way as you are here..

My explanation is in this thread to another comment(anon1096). To expand:

> The era between the mid-1830s and the Civil War—a period economists refer to as the “free banking era”—saw a proliferation of banks. Along with these institutions came “bank notes,” a private paper currency redeemable for a specific amount of metal. That is, if the issuing bank had it. At times, banks did not have enough gold or silver to satisfy all of their claims. Bank notes, like the public notes that preceded them, also tended to depreciate. It is during this period that the word inflation begins to emerge in the literature, not in reference to something that happens to prices, but as something that happens to a paper currency.

> The term inflation was initially used to describe a change in the proportion of currency in circulation relative to the amount of precious metal that constituted a nation’s money. By the late nineteenth century, however, the distinction between “currency” and “money” was becoming blurred.

> In addition to separating the price level from the money stock, the Keynesian revolution in economics appears to have separated the word inflation from a condition of money and redefined it as a description of prices.

> When Keynesian economic theory challenged the direct link between money and the price level, inflation lost its association with money and came to be chiefly understood as a condition of prices.

https://www.clevelandfed.org/newsroom-and-events/publication...

Keynesian economists changed the word to suite the needs of Keynesian theories. It is equivalent to "newspeak". It obfuscates and confuses. There is a large portion of the population that does not believe in the implementation of or understand Keynesian economics(and definitions). They may not be very good at explaining or understanding their discontent due to these semantics changes.

Then again, maybe you are right. As Milton Friedman famously stated, "We are all Keynesians now."

Re: Banks, QE, and Money-Printing

#202
post #139

Earlier quoted context omitted.

"The problem is that there is a limit to how much treasuries you can sell to the market." Why is there? Given that Federal spending puts the reserves in place with which Treasuries are purchased, how can there be a limit? It's just an asset exchange. "No one wants to buy those treasuries at the proposed rates and volumes anymore." (i) What is the bid cover on the latest auctions (ii) Why do you think that matters any…

Because there is no perpetuum mobile. By issuing treasuries a government loans economic power from markets in addition to what it gets from taxes. In a limit everyone will work for a government, so the system effectively degenerates to a centralized planned economy. Of course, in a capitalist society people will loose their trust in a government long before that. In a well working system this additional power is used…

"Because there is no perpetuum mobile"

No, but there is an oil sump in an engine, and that stops it seizing up.

"By issuing treasuries a government loans economic power from markets"

OK. Let's test that. Let's say Scotland issues a new currency. Let's say the Scottish government believes it has to get money from markets to spend.

Where are 'the markets' going to get the Scottish currency from to buy the bonds?

Now do you see how you have the monetary operations backwards.

Bonds are a reserve drain. You can't do a reserve drain until you do a reserve add.

"More you try to loan from market, higher rate will be required"

There is no operational mechanism for that to happen. For rates to go up prices have to go down. If prices go down then the Fed simply QE's the Treasury out of circulation and forces the price back up.

The Fed has complete control of the yield curve all the way up the maturity. You get to play in the Treasury market on the whim of the Fed, and under no other conditions.

Re: Banks, QE, and Money-Printing

#203

Earlier quoted context omitted.

"Reserve currency status does afford increased deficit-spending capacity." Reserve currency is essentially a myth. It's just an artefact of double entry bookkeeping in banks. There are lots of reserve currencies. Every floating rate currency held outside its native borders is "reserve". It's just somebody holding the money - aka savings. Many countries do that for mercantile reasons to avoid a dutch disease at home.…

> Every floating rate currency held outside its native borders is "reserve" This is empirically false. Offshore currency holdings make offshore financing in your currency easier. That makes financing deficits less likely to produce domestic inflation. Quantity and diversity of the offshore holders of one's currency matter. There is a qualitative difference between the U.S. dollar and Argentinian peso.

"This is empirically false"

It isn't. It is accounting fact. Every currency held outside its borders is a foreigner saving that currency. That's all a reserve is.

Lots of people like to hold US dollars. Fewer Argentine pesos even within the country.

Actually having fewer people hold you currency makes it easier to run. You just make your budget in that currency balanced by increasing taxes. If you have lots of people saving your currency then let them - and accommodate the savings.

Re: Banks, QE, and Money-Printing

#204
post #171
post #167

Earlier quoted context omitted.

>From 1984 to 2016 housing prices in the Greater Vancouver area have gone up 800% [1]. Foreign buyers laundering money isn't inflation.

why does it matter? if you want to buy a home you have to pay up regardless of where your money comes from.

Because foriegn money driving up prices is a different problem and requires a different solution.

Re: Banks, QE, and Money-Printing

#205
post #81

Earlier quoted context omitted.

Presumably for the USD to lose reserve currency status some other currency would have to become more attractive as a long term bet? Are there any obvious candidates at the moment?

The Chinese Yuan is on its way to supplanting the US Dollar as a reserve currency in some regions, particularly Africa. https://qz.com/africa/1291372/chinas-yuan-gets-support-from-...

Does the US, or any nation really, care what Reserve Zimbabwe uses? Not trying to be flippant, I'm just not sure that these nations matter at all on the world stage

Re: Banks, QE, and Money-Printing

#206

Earlier quoted context omitted.

> Inflation literally is money printing. Price increases is not inflation. According to who exactly? I encourage you to research this and determine the validity of your assertion, as I can't even find a single person defining it the same way as you are here..

My explanation is in this thread to another comment(anon1096). To expand: > The era between the mid-1830s and the Civil War—a period economists refer to as the “free banking era”—saw a proliferation of banks. Along with these institutions came “bank notes,” a private paper currency redeemable for a specific amount of metal. That is, if the issuing bank had it. At times, banks did not have enough gold or silver to sat…

>>"> The term inflation was initially used to describe a change in the proportion of currency in circulation relative to the amount of precious metal that constituted a nation’s money."

That definition of inflation makes no sense in the current monetary arrangements, it's, simply, not how it works anymore. There is not an "amount of precious metal that constituted a nation’s money." If some people don't understand that, we should aim to educate them.

>>"Keynesian economists changed the word to suite the needs of Keynesian theories."

Whatever the historical meaning of a word, inflation means something very clear now

From https://en.wikipedia.org/wiki/Inflation:

"In economics, inflation (or less frequently, price inflation) is a general rise in the price level in an economy over a period of time, resulting in a sustained drop in the purchasing power of money."

You can't just revert the meaning because it suite your needs, and expect everybody agree. Whatever your feelings about it, that it what it means now.

Re: Banks, QE, and Money-Printing

#207
post #28
post #22

Earlier quoted context omitted.

As someone who really doesn't understand economics: if the government prints money to build infrastructure, where does the value they've added come from? I can't follow the logic of it: the government makes some money and pays a load of workers to build a bridge. It seems like the bridge is 'free', paid for with bits of paper they printed. Is the real cost the increased price of bridge building for everyone else, bec…

The economy has two components - today and the future. Today, we decide who gets what stuff. Then the people who have most of the stuff decide what to create for the future. The bridge isn't free - the resources needed to build the bridge (time, steel, engineering attention, government attention, etc, etc) are being reallocated from someone else who would have used the resources to do something. If the bridge is more…

>>"The problem with money printing is it is all but impossible to figure out where the resources are being reallocated from - with taxes it is fairly obvious. With money printing it is not. It may well be impossible to say what we lost to get the bridge built because we can't figure out what would have happened if the money had not been printed. "

It seems to me that, following your logic, if you don't "print the money", it's also impossible to know what would have happened if the money have been printed.

Re: Banks, QE, and Money-Printing

#208

Earlier quoted context omitted.

It definitely seems like BS to me. At 3% it's 258% over 32 years (1.03^32). Most people are barely getting 1% annual raises which means income increases by 138% over the same period. From 1984 to 2016 housing prices in the Greater Vancouver area have gone up 800% [1]. Assuming I got the math right, it doesn't take much to see current young people are getting screwed. In the last 4 decades wages have barely increased,…

> Most people are barely getting 1% annual raises which means income increases by 138% over the same period. Where is that 1% coming from? It seems to me US salaries growth pretty much followed 3/5% average for the last 50 years, with some obvious drawdowns during crises. Source: https://tradingeconomics.com/united-states/wage-growth > In the last 4 decades wages have barely increased, but major assets like cars and…

> It seems to me US salaries growth pretty much followed 3/5% average for the last 50 years, with some obvious drawdowns during crises.

Source: https://tradingeconomics.com/united-states/wage-growth

Is the source taking the average or median for wage growth? I'd expect that the average has gone up because of the insane growth in executive pay. But I'd be interested in seeing the change in the median, which I'm sure is much less than the average.

Re: Banks, QE, and Money-Printing

#209

Earlier quoted context omitted.

Fixed payents (bonds, etc) are fixed. Wage-earners see wages increase with inflation. Possible slight lag, but effectively little. Cash savings of course devalue. Asset holdings (real estate, equities) appreciate with inflation. Debts are reduced -- values fall as money is diluted (the gain side of banks' loss).

That's what I mean when I say poor - no debts, no assets just little savings in money and wages. Possible slight lag is not only possible and not slight, every increase in wages must be battled for while inflation comes automatically, money also represents 100% of the capital and therefore affects the poor completely.

> money also represents 100% of the capital and therefore affects the poor completely.

Per definition the poor don't have much savings. Their wealth is mostly in durable consumer goods: Car, television, furniture, etc. The market prices of these goods rise with inflation.

Re: Banks, QE, and Money-Printing

#210

Earlier quoted context omitted.

Your points actually contradict each other. Do interest rates trump supply and demand and global capital movements, or not? Here's a graph of median personal income: https://fred.stlouisfed.org/series/MEPAINUSA672N And here's a graph of median house prices: https://fred.stlouisfed.org/graph/fredgraph.png?id=MSPUS&nsh... That is almost exactly an increase of 8X, compared to roughly 1.5X for personal income. Do you thi…

I think these graphs mistakenly compare inflation adjusted wages to unadjusted house price. It also fails to account for increases in house size. Inflation adjusted cost per square foot is $126 in 1978 and $146 in 2020, about a 16% increase. Inflation adjusted wages over the same years went from 24.5K in '78 to 36K in '19, for about a 46% increase. According to these stats, housing is actually more affordable for the…

I wonder to what extent homes have increased in size to compensate for the higher price of the land they are built on.

In my neighbourhood over the last ten years small-ish 1-floor homes built in the 70s and 80s have been consistently replaced with 3-story McMansion atrocities.

You can't buy a smaller, cheaper, house because they are not being built, and I suspect the reason I'd that their price per square foot would be sky high due to the cost of the land.

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