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Federal Reserve balance sheet trends

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Re: Federal Reserve balance sheet trends

#151

Post by thomashobohm »

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…

Absolutely BEGGING you to figure out the difference between the Fed and the Treasury.

Re: Federal Reserve balance sheet trends

#152

Post by andreilys »

cultus wrote: post #143
ravenstine wrote: post #137

Earlier quoted context omitted.

That's really not a good way to address blanket statements. Just referring to nebulous "smart people" adds nothing. It doesn't need a detailed rebuttal. Here are some examples of reasonable responses: - How do you know that? - When in history did that happen? - Could you be more specific? None of those require more than one sentence, or implying that the person is too stupid to have an opinion.

The nebulous "smart people" is a good thing to bring up when a tech person is Dunning-Krugering outside of their field.

Except the field of economics is filled with Dunning Kruger’s, despite years and years of education.

I am yet to find a macro economist that is sensible and intelligent.

Re: Federal Reserve balance sheet trends

#153

Post by thomashobohm »

adventured wrote: post #118
garmaine wrote: post #81

Earlier quoted context omitted.

Read the last few sentences critically. Each regional federal reserve bank (there are several) is owned by private banks. The profits are merely capped.

The ownership is nothing more than symbolic. They have absolutely no control over the Federal Reserve. They can set no policy, they dictate nothing through the 'ownership.' They receive profits in exchange for participating in the system, it's a lure for drawing in private banking participation. The profit share ("dividends") the banks receive is trivial, a couple percent of the Fed's profits. Typically 96-98% of pro…

I have no idea why you're being downvoted; anybody should be able to understand that the Fed is independent (from the "government" in the typical sense of the word, but especially from private interests) by simply googling it. Do these conspiracy theorists really believe the Fed is secretly controlled by a cabal of private banks or something?

Re: Federal Reserve balance sheet trends

#154

Post by thomashobohm »

skrtskrt wrote: post #145
thomashobohm wrote: post #144

Earlier quoted context omitted.

That's not how any of this works; inflation statistics are calculated by the Bureau of Labor Statistic, independently of the Federal Reserve. There's no conspiracy among Fed economists to try and hide inflation.

I didn't say the Fed calculated it. I did say they reference it to say their policies (or whoever's policies) aren't causing inflation. When a majority of leading economists subscribe to economic views that don't reflect the lived reality of an average person, it may not be a conspiracy, but the effect (groupthink) is similar.

Sorry, but it's at this point in the thread that I realize that talking to tech bros on hacker news about monetary policy is actually the seventh circle of hell. Glhf.

Your claim, to be clear, is that inflation is occurring, but the BLS is hiding it, so that the Fed can hit their targets easier? Why stop there-maybe the board of governors also brings Beyonce in during their closed meetings for private concerts, and pays for them with t-bills.

Re: Federal Reserve balance sheet trends

#155

Post by thomashobohm »

andreilys wrote: post #148
czinck wrote: post #107

Earlier quoted context omitted.

> The Fed is buying assets at a premium (otherwise counterparties wouldn't sell the assets to the Fed) That's not necessarily true, economic transactions aren't necessarily zero-sum. I would assume for most of the assets being sold to the Fed, the banks need liquid cash more than they need the asset and so would be willing to take a haircut. >The only way this ends is either a depression the scales of which we've nev…

The fed is buying junk corporate bonds that would otherwise plummet in value.

This is not accurate. A "plummet" in value when it comes to the fallen angels that the Fed is purchasing is more like a 10% drop, and even if you treat the difference between the "true" value of the bonds (if the Fed didn't purchase them) and what the Fed pays as a surplus, the aggregate value of all those surpluses is still tiny in the grand scheme of things.

Re: Federal Reserve balance sheet trends

#156

Post by andreilys »

thomashobohm wrote: post #155
andreilys wrote: post #148

Earlier quoted context omitted.

The fed is buying junk corporate bonds that would otherwise plummet in value.

This is not accurate. A "plummet" in value when it comes to the fallen angels that the Fed is purchasing is more like a 10% drop, and even if you treat the difference between the "true" value of the bonds (if the Fed didn't purchase them) and what the Fed pays as a surplus, the aggregate value of all those surpluses is still tiny in the grand scheme of things.

LQD, a corporate bond ETF, plunged -20%.

It likely would have fallen even further, until the fed decided to intervene and buy corporate bond ETFs.

Now LQD has fully recovered and is back to pre-corona virus levels.

More interesting is the rebound in HYG, another Corp bond ETF, which is 50% BB rating, and the remaining 50% below BB rating. I imagine those will get downgraded and be even worst.

Now what happens when companies can’t meet their debt obligations is that covenants will get triggered and that can mean a whole lot of bad things for corporate debt. Which the federal reserve now holds because nobody else wants it.

Re: Federal Reserve balance sheet trends

#157

Post by tempsy »

czinck wrote: post #107
_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…

> The Fed is buying assets at a premium (otherwise counterparties wouldn't sell the assets to the Fed) That's not necessarily true, economic transactions aren't necessarily zero-sum. I would assume for most of the assets being sold to the Fed, the banks need liquid cash more than they need the asset and so would be willing to take a haircut. >The only way this ends is either a depression the scales of which we've nev…

Asset managers are front running the Fed. The Fed hasn’t even bought junk corporate bonds yet. They’ve only signaled that they are willing to do so, which immediately sent the price of junk corporate bond ETFs skyrocketing.

If the Fed steps in to save this market they’ll overpay for debt from companies included in these bond ETFs that will likely go under anyway.

It also creates a moral hazard situation where poor performing companies can raise cheap debt because everyone now thinks the Fed will step in and guarantee it.

Re: Federal Reserve balance sheet trends

#158

Post by take_a_breath »

3fe9a03ccd14ca5 wrote: post #140
take_a_breath wrote: post #94

Earlier quoted context omitted.

It is rarely mentioned how deficit spending leads directly to private wealth creation. Increased military spending actually means increased outsourcing. It’s a transfer of wealth from the collective (future taxpayers) to the private (contractors and businesses).

Is there something inherent to the defense industry that’s not true also for other industries?

Other than the amount of government money they receive, not particularly. Same thing would happen if we increased deficit spending for education purposes. Schools might bring in more external for mental health, contract out food preparation, provide tablets for all students, etc. Each of those would be a transfer of money from public (taxpayers) to private hands (contractors and companies).

One could argue that investing in a bomb that explodes in another country doesn't create as much economic value as using that same money to invest in the education of an American child.

Eisenhower had some thoughts when he left office [1]:

==This conjunction of an immense military establishment and a large arms industry is new in the American experience. The total influence -- economic, political, even spiritual -- is felt in every city, every State house, every office of the Federal government. We recognize the imperative need for this development. Yet we must not fail to comprehend its grave implications. Our toil, resources and livelihood are all involved; so is the very structure of our society.

In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the militaryindustrial complex. The potential for the disastrous rise of misplaced power exists and will persist.

We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.==

==Another factor in maintaining balance involves the element of time. As we peer into society's future, we -- you and I, and our government -- must avoid the impulse to live only for today, plundering, for our own ease and convenience, the precious resources of tomorrow. We cannot mortgage the material assets of our grandchildren without risking the loss also of their political and spiritual heritage. We want democracy to survive for all generations to come, not to become the insolvent phantom of tomorrow. ==

[1] https://avalon.law.yale.edu/20th_century/eisenhower001.asp

Re: Federal Reserve balance sheet trends

#159

Post by thomashobohm »

andreilys wrote: post #156
thomashobohm wrote: post #155

Earlier quoted context omitted.

This is not accurate. A "plummet" in value when it comes to the fallen angels that the Fed is purchasing is more like a 10% drop, and even if you treat the difference between the "true" value of the bonds (if the Fed didn't purchase them) and what the Fed pays as a surplus, the aggregate value of all those surpluses is still tiny in the grand scheme of things.

LQD, a corporate bond ETF, plunged -20%. It likely would have fallen even further, until the fed decided to intervene and buy corporate bond ETFs. Now LQD has fully recovered and is back to pre-corona virus levels. More interesting is the rebound in HYG, another Corp bond ETF, which is 50% BB rating, and the remaining 50% below BB rating. I imagine those will get downgraded and be even worst. Now what happens when co…

Yes, this is a good methodology: we should take the lowest point of a random ETF, extrapolate it out, and use that number in our analysis of the Fed's actions.

edit: they edited their comment extensively after I sent this haha.

Re: Federal Reserve balance sheet trends

#160

Post by fbonetti »

laurus wrote: post #92

One of the biggest things confusing people about how public finance works is that everyone is focused on the Fed rather than the Treasury. A good aspect of MMT is that it explains how the Treasury spending more than it takes in in taxes means more money is created into the economy than is deleted out of the economy. This is the more important thing to focus on. Some of the MMT professors also do a good job explaining…

> A good aspect of MMT is that it explains how the Treasury spending more than it takes in in taxes means more money is created into the economy than is deleted out of the economy. This is the more important thing to focus on.

This is one of the most absurd claims of the supposedly "descriptive" MMT. Taxation does not delete money from the economy. When the federal government collects taxes, it doesn't take that money and burn it in a giant pit. It turns around and immediately spends that money.

Yes, the federal government does not need your tax dollars. Yes, they technically have the ability to print an infinite amount of dollars. But that doesn't support the claim that taxation removes money from the economy.

> Some of the MMT professors also do a good job explaining how QE (quantitative easing) doesn't create new net financial assets into the system, it just shifts around assets in accounts at the Fed.

This is completely false. The Fed creates new reserves (base money) in order to buy assets.

https://fred.stlouisfed.org/series/BOGMBASE

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