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Federal Reserve balance sheet trends

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Re: Federal Reserve balance sheet trends

#11

Post by lifty »

vkou wrote: post #8
iwangulenko wrote: post #4

Has anyone any idea what that means to the average joe? How to protect one's purchasing power? If the government can give you free money (1200$ checks), it also has the power to take everything away from you, right?

The $1200 money isn't free, it is borrowed from future taxpayers. The money the Fed prints doesn't go to Joe Average. It goes to investors who are selling the Fed junk bonds. (They then turn around, and buy stocks with those dollars, which is why the market is soaring.)

"The $1200 money isn't free, it is borrowed from future taxpayers."

That is debatable. They say this but at some point you have to wonder, will they have the capacity to take it off the balance sheet without massive inflation? Historically, there are two ways governments went out of huge debt: default or massive inflations. I doubt the USG will ever let itself default so inflation is more likely. One advantage that the US has is that it has the world reserve currency.

Re: Federal Reserve balance sheet trends

#12

Post by somebodythere »

aswanson wrote: post #9

So I'm hearing the " the dollar is over, throw everything into gold, fiat money is doomed" in other forums. Can anyone give some conterpoints to that narrative?

The main counterpoint is that this stimulus would be needed to counter massive demand-side deflation.

Re: Federal Reserve balance sheet trends

#13

Post by wegs »

vkou wrote: post #8
iwangulenko wrote: post #4

Has anyone any idea what that means to the average joe? How to protect one's purchasing power? If the government can give you free money (1200$ checks), it also has the power to take everything away from you, right?

The $1200 money isn't free, it is borrowed from future taxpayers. The money the Fed prints doesn't go to Joe Average. It goes to investors who are selling the Fed junk bonds. (They then turn around, and buy stocks with those dollars, which is why the market is soaring.)

It isn't free, but that isn't really true. The $1200 comes out of inflation, which decreases the value of accumulated wealth (at least to the extent it sits in cash).

If you're sitting on a retirement fund, that hurts you. If you're sitting on debt, that helps you. So it's much more past tax payers than future ones who are hurt by this.

On the other hand, decreasing the value of accumulated wealth is exactly what ought to happen here. We're not producing very much, and everyone will have less actual stuff. The question is how the banking system adjusts.

If we see deflation (prices go down, salaries go down, revenues go down), people will default on debts and other fixed obligations, and the whole thing blows up in structural damage from bankruptcies, mortgage defaults, layoffs, etc.

If we see inflation, a lot less structural damage happens.

COVID19 is destroying value. What the fed is doing -- inflation in the stock market to keep prices where they were -- is exactly what ought to happen. Inflation will continue to happen elsewhere in the system. The flip side is you don't want starving, homeless people in the streets -- that will destroy massive wealth. We'll deal with that with inflation too, most likely.

Re: Federal Reserve balance sheet trends

#14

Post by lifty »

aswanson wrote: post #9

So I'm hearing the " the dollar is over, throw everything into gold, fiat money is doomed" in other forums. Can anyone give some conterpoints to that narrative?

Short term, the USD will probably strengthen because of huge demand from emergent markets and other places that have USD denominated loans. For more info you can watch the Dollar Milkshake theory [1], or some of the work Raoul Pal has done. Long term, I don't know, but I think the USD will weaken.

[1] https://www.youtube.com/watch?v=6mkV-c0mlZE

Re: Federal Reserve balance sheet trends

#15

Post by christophilus »

aswanson wrote: post #9

So I'm hearing the " the dollar is over, throw everything into gold, fiat money is doomed" in other forums. Can anyone give some conterpoints to that narrative?

Look up Peter Zeihan. He’s bullish on the dollar mostly because it’s the world’s reserve currency and there really isn’t a good alternative. That said... I’ve heard the dollar referred to as the best looking horse in the glue factory.

Re: Federal Reserve balance sheet trends

#16

Post by vkou »

wegs wrote: post #13
vkou wrote: post #8

Earlier quoted context omitted.

The $1200 money isn't free, it is borrowed from future taxpayers. The money the Fed prints doesn't go to Joe Average. It goes to investors who are selling the Fed junk bonds. (They then turn around, and buy stocks with those dollars, which is why the market is soaring.)

It isn't free, but that isn't really true. The $1200 comes out of inflation, which decreases the value of accumulated wealth (at least to the extent it sits in cash). If you're sitting on a retirement fund, that hurts you. If you're sitting on debt, that helps you. So it's much more past tax payers than future ones who are hurt by this. On the other hand, decreasing the value of accumulated wealth is exactly what oug…

No, that $1,200 didn't come out of the Fed printing press. It came out of the general budget, so taxpayers are going to be on the hook for paying it back, in the future.

The trillions the Fed is printing aren't being sent out as stimulus cheques. They are being used to provide short-term liquidity (Which does not cause inflation), and to buy junk bonds, (Which does cause inflation, and also happens to prop up the stock market.) Some of that money is also being lent to the government - if those loans are paid back, they will cause net zero inflation. (Because once the money is paid back to the Fed, it is destroyed.)

This is precisely why we have central banks that are independent of government budgets. It creates checks and balances against a government choosing to print its way out of budget troubles.

Re: Federal Reserve balance sheet trends

#17

Post by hydraxis »

aswanson wrote: post #9

So I'm hearing the " the dollar is over, throw everything into gold, fiat money is doomed" in other forums. Can anyone give some conterpoints to that narrative?

The USD is still one of the most sane currency in terms of ratio between the money supply and GDP.

Re: Federal Reserve balance sheet trends

#18

Post by wegs »

lifty wrote: post #11
vkou wrote: post #8

Earlier quoted context omitted.

The $1200 money isn't free, it is borrowed from future taxpayers. The money the Fed prints doesn't go to Joe Average. It goes to investors who are selling the Fed junk bonds. (They then turn around, and buy stocks with those dollars, which is why the market is soaring.)

"The $1200 money isn't free, it is borrowed from future taxpayers." That is debatable. They say this but at some point you have to wonder, will they have the capacity to take it off the balance sheet without massive inflation? Historically, there are two ways governments went out of huge debt: default or massive inflations. I doubt the USG will ever let itself default so inflation is more likely. One advantage that t…

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.

Re: Federal Reserve balance sheet trends

#19

Post by me_me_me »

somebodythere wrote: post #12
aswanson wrote: post #9

So I'm hearing the " the dollar is over, throw everything into gold, fiat money is doomed" in other forums. Can anyone give some conterpoints to that narrative?

The main counterpoint is that this stimulus would be needed to counter massive demand-side deflation.

Well easy fix instead of giving money to the top, give it to the bottom. That will surely drive demand as more money is available to spend. It will boost confidence in local economies further growing demand and supply caps.

What we see now it large parts of the stimulus package are devoured by the top level bureaucracy never doing anything but being transferred to Cayman islands as performance bonuses.

How about we try the trickle up economy for once?

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