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Federal Reserve balance sheet trends

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Re: Federal Reserve balance sheet trends

#121

Post by throw1234651234 »

alexmingoia wrote: post #84
mrfredward wrote: post #77

Earlier quoted context omitted.

>Future generations pay this back not through taxes but through inflation. I don't think that's a fair characterization. Inflation helps people with student loans (salary grows but debt stays the same) and hurts people with retirement accounts full of bonds. Broadly speaking, inflation helps the young (by closing the wealth gap between haves and have-nots).

Not every young person is in debt. Inflation helps those in debt or holding debt denominated assets, young and old. Inflation hurts savers. If you’re young without debt, inflation devalues your savings.

That's the argument for crypto and the gold standard.

Re: Federal Reserve balance sheet trends

#122

Post by cm2187 »

toomuchtodo wrote: post #117
Jeema101 wrote: post #112

Earlier quoted context omitted.

I don't think the problem at the current time is inflation - it's deflation. There's less money chasing the same amount of goods and services. That was the case during the Great Depression - and the Fed exacerbated things at that time by not intervening in controlling the money supply because they were bound by rules which prevented them from doing so. If inflation suddenly increases, then the Fed has tools to combat…

> They can sell off some of their balance sheet or raise interest rates to reduce the amount of money in the system. The Fed was unable to unwind more than ~$650B out of $4T from their balance sheet in one of the longest expansion periods in US history. How will they do this? This is not a rhetorical question, I am genuinely curious in how people think this will be done if the Federal Reserve itself can't do it (eith…

And if they can’t do it in good times. Like how much better than 2019 the economy needs to be to unwind more?

Re: Federal Reserve balance sheet trends

#123

Post by jchook »

_curious_ wrote: post #113
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…

"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.

Re: Federal Reserve balance sheet trends

#124

Post by bawana »

The money the fed injects into the financial system is staying in the financial system. Too many dollars chasing too few equities could result in ‘equity inflation’=stock market bubble. (I am using the word equity as a symbol for any financial instrument) But none of this money ( or maybe just a token fraction of it) is reaching the real world. The purpose of this quantative easing is to prop up values of the warehouses of wealth. We still have massive unemployment but the firms doing the layoffs have stable stock prices . What is really amazing is that we live in a world where Marie Antoinette can flaunt her wealth and at the same time use that as an example of ‘free speech’

Re: Federal Reserve balance sheet trends

#125

Post by ravenstine »

thomashobohm wrote: post #103
freeMoneySry wrote: post #93

Earlier quoted context omitted.

This reminds me of how the Romans supposedly didn't know that printing money would create inflation. We know MMT is bad long term policy, but politicians in the short term can create favorable economic conditions for the few.

These things are not known, actually. There are people much smarter than you or me that would disagree with your sentiment that "we know MMT is a bad long term policy."

> There are people much smarter than you or me that would disagree with your sentiment that "we know MMT is a bad long term policy."

How is anyone supposed to argue against that? You can use that to try and defeat any argument, but it doesn't really demonstrate anything. What people? How do you know they are smarter? Are smart people always correct?

Re: Federal Reserve balance sheet trends

#126

Post by Anon1096 »

xiphias2 wrote: post #96
wil421 wrote: post #85

Earlier quoted context omitted.

I’ve been hearing the same exact thing, minus bitcoin/fiat money comment, since the 2000 crash. The dollar is doomed, China’s going to collapse the dollar, buy gold, buy non-fiat money. Buy an index fund and wait I say.

And they were right. Gold overperformed S&P with dividends reinvested over the last 20 years, and I don't expect this trend stopping.

Gold is currently lower than it was at its peak and subsequent crash in 2012. There's no evidence it will ever come back to those all time highs, and definitely not fast enough to outpace total market investments. There's no "trend" to see here.

Re: Federal Reserve balance sheet trends

#127

Post by skrtskrt »

mariojv wrote: post #86
_gx90 wrote: post #67

Earlier quoted context omitted.

>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…

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 after we pump gazillions of dollars in during QE", while ignoring the fact that easy money has lead to massive multinationals consolidating control of real estate and jacking prices up.

So even if it is somehow true that houses have gotten better in some ways (I'm not really convinced), that doesn't matter to people lower on the income scale where the price of housing is the difference between having a roof over their head and not - they can't really afford to care about the latest greatest improvements in housing. They have a different demand curve - be homeless or spend most of their income on rent.

Rent vs income since 1960: https://www.apartmentlist.com/rentonomics/rent-growth-since-...

Skepticism about the application of hedonic adjustments https://www.sgtreport.com/2019/12/what-worries-me-about-hedo...

"The theory is that the vast majority of that 70% price increase of a Camry since 1990 is due to quality improvements, with buyers today getting a far superior Camry; and that only a smaller part of that 70% price increase is due to monetary inflation, namely the dollar losing its purchasing power"

Re: Federal Reserve balance sheet trends

#128

Post by RobertoG »

aazaa wrote: post #108

This will work out fine until it doesn't. At that point, the US will face many "bad or worse" kinds of choices. It will be like the choice we face today: "close the economy or the morgues start overflowing everywhere." Except it will be every day, more or less forever. Inject still more money into the economy or the entire financial system collapses. Whenever this balance sheet chart shows up, MMT boosters descend to…

I would like to clarify that the MMT proponents that I follow are not favorable to the QE type of interventions that we have seen in the last years.

They only pointed(1), correctly, that QE was not going to be inflationary AND that monetary policy is not the proper tool for this kind of problem. Fiscal policy is the proper tool.

You will not find MMT economist defending QE or the buying of financial assets, other that public debt bonds, if it's legally required to finance fiscal policies.

If fact, many are very critical(2) of this kind of programs.

(1) - http://bilbo.economicoutlook.net/blog/?p=28422 (2) - http://bilbo.economicoutlook.net/blog/?p=4763

Re: Federal Reserve balance sheet trends

#129

Post by bawana »

We need to separate the accounting of ‘financial flows of money’ (money spent on financial instruments) from money spent on goods and services that are not financial. We need to be able to compare the gross financial product with the gdp. This way we can speak more precisely about inflation that affects the real world of Adam Smith vs the world of imaginary values and wealth.

Re: Federal Reserve balance sheet trends

#130

Post by defertoreptar »

vkou wrote: post #16
wegs wrote: post #13

Earlier quoted context omitted.

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 sto…

> if those loans are paid back, they will cause net zero inflation.

Assuming you can get the fed to make that money disappear, which it doesn't have a good track record of doing so far.

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