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?
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Federal Reserve balance sheet trends
241–250 of 266 posts
Re: Federal Reserve balance sheet trends
#242This 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…
MMT doesn't argue that fiscal deficits don't matter, it states that the only constraint is inflation, which is more related to the real economy (eg. supply/demand, trade / current account deficits).
MMT doesn't necessarily condone the Fed's recent round of unlimited QE. Most MMT advocates if anything would probably prefer that money going directly to the people (ie. helicopter money) or to fund ambitious federal programs (eg. job guarantee, UBI, investment) than bailing out mortgage bond investors.
Re: Federal Reserve balance sheet trends
#243Earlier quoted context omitted.
>I mean economists who have spent their lives studying monetary and fiscal policy and analyzing how it can be used to make the world a better place. This means nothing when they haven't been held accountable for bad predictions. I work in finance, and it's super easy to build a model that looks like it can predict the future, but fails completely when applied in practice, due to some statistical/modelling error. Pred…
I'm not sure what your point is? The comment I was replying to said "we know this is always true" I said, actually, economists aren't really sure about that issue. If your concern is that economists aren't good at making certain predictions, then guess what, we agree. Economists are also acutely aware of this fact and most of the ones involved in actual economic research are careful not to overstate the implications…
I know online arguments can be super frustrating, but can you please not be a jerk in your posts here, regardless of how wrong other people or you feel they are? You posted something like half a dozen swipes in this thread that broke that site guidelines. This is the sort of thing that degrades discussion badly because the toxins compound.
It sounds like you know more about this field than others. That's great—but then the thing to do is share some of what you know, so we all can learn. If you mix it with cheap shots and swipes, that not only breaks HN's rules, it discredits the truth you're trying to advance, which is not in your interests or anyone else's.
Re: Federal Reserve balance sheet trends
#244Earlier quoted context omitted.
>>"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." I didn't know that idea was so polemic. So, what you are saying is that government deficits are inflationary because they add money to the eco…
> So, what you are saying is that government deficits are inflationary because they add money to the economy, but, on the other hand, government surplus don't retire money from the economy? Honestly I don't know what point you're trying to make, or what deficits or surpluses have to do with anything. A deficit or surplus is merely the delta between total revenues and an arbitrarily defined budget. Inflation is caused…
I'm a little late, but I want to answer for the sake of completeness.
>>"Honestly I don't know what point you're trying to make, or what deficits or surpluses have to do with anything."
You say "Inflation is caused by additional dollars chasing the same number of goods". We agree with that (it could be a supply problem too, but that's another subject).
Now, it seems to me that we agree also that a government deficit can be inflationary. So, by definition, a government deficit is adding money to the economy.
My question is: if a government deficit is adding money to the economy, what a government surplus is doing? That's the meaning of "taxes destroy money".
>>" The question you need to ask yourself is, where did those reserves come from? Another question you need to ask is, when Fed engages in QE, why does the monetary base increase? "
Monetary base increase because that is how it's defined.
I think that the problem here is that you subscribe to the fractional reserve banking theory that, I'm afraid, is false. I suggest reading this report from the Bank of England (1) about how money creation works. A private bank lending is not limited for the quantity of reserves available in the system, because central banks have to keep the system of payments working and are targeting an interest rate. So, central banks have to answer any request for additional reserves.
The corollary to all this, is that it doesn't matter if the asset of the private bank is a treasury or reserves in the banking system, banks can lend anyway. The central banks sell treasury to the banks for controlling the interest rate, not the quantity of money.
1. - https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
Re: Federal Reserve balance sheet trends
#245Earlier quoted context omitted.
It doesn't really need much of a counterpoint, given how silly it is. Regarding the USD, the same doom cults say the same things during every major global problem / event / disaster going back generations. The dollar was supposed to go away with the great recession; the dollar was supposed to go away with the intense inflatation of the 1970s; the dollar was supposed to go away with Nixon's abandonment of what was lef…
> the dollar was supposed to go away with Nixon's abandonment of what was left of the gold standard; the dollar was supposed to be doomed with FDR's various moves. The value of the dollar in 1968 was - roughly - (1/40)th of an ounce of gold. The dollar today is roughly (1/1660)th of an ounce of gold. That is a >95% reduction in value over less than a lifetime. The people who argued the dollar was going to undergo int…
Except that the dollar typically paid an interest rate in the interval while the gold did not: https://www.macrotrends.net/2015/fed-funds-rate-historical-c...
Re: Federal Reserve balance sheet trends
#246Earlier quoted context omitted.
People were saying that moving off the gold standard would destroy the value of the dollar. They were not incorrect. After moving off the peg the dollar has effectively lost all its value. The major thing they got wrong was thinking that people would stop using it after it lost whatever % of its value it did. 97% or somesuch so far. Turns out not.
I would say that the dollar had already lost a bunch of its value by 1968. It's just that the gold peg hid that when you measure the value of the dollar in gold. But if you look at inflation during the 1950s, the dollar was losing value then as well. Now, sure, the dollar lost a lot of value between 1968 and now. I don't deny it. But it also lost value between 1935 and 1968. Measuring the value of the dollar in terms…
It was about ~$20/oz when it started around 1900 and the government claimed ~$35/oz at the end. That is about 50% value loss, maybe a bit worse, in the 70 years of the gold standard.
$35 to $1,650 looks a lot more like a collapse in value. And that is after the demand for gold presumably plummeted because it wasn't official money any more, and mining got a lot more efficient through the 70s to the 90s. Maybe the Asians made up for that with new wealth and demand or something. If I'd been alive in 1970s, arguing that the dollar would collapse in value, I wouldn't feel like I'd lost the argument looking at how history played out. I'd probably have gotten the timeframe wrong, but the mechanisms are playing out as expected.
The thing that really stuns me is that countries are willing to hold US dollars as a reserve currency. It is a terrible move for value preservation. They aren't aiming to maximise their savings.
[0] https://en.wikipedia.org/wiki/History_of_the_United_States_d...
Re: Federal Reserve balance sheet trends
#247Earlier quoted context omitted.
> the dollar was supposed to go away with Nixon's abandonment of what was left of the gold standard; the dollar was supposed to be doomed with FDR's various moves. The value of the dollar in 1968 was - roughly - (1/40)th of an ounce of gold. The dollar today is roughly (1/1660)th of an ounce of gold. That is a >95% reduction in value over less than a lifetime. The people who argued the dollar was going to undergo int…
Except that the dollar typically paid an interest rate in the interval while the gold did not: https://www.macrotrends.net/2015/fed-funds-rate-historical-c...
It gets a bit awkward there because the interest return is afaik taxed as it is earned through income taxes while the gold return is capital and taxed at sale.
I know in Australia if you are looking for wealth preservation it is a hands-down win for gold but I don't know enough about the US tax system to comment on what would happen. I suspect the returns are a lot less rosy and it turns out most of the real wealth ends up being transferred to the government.
Re: Federal Reserve balance sheet trends
#248Earlier quoted context omitted.
> This type of "debt" is fundamentally different from private sector debt or other ordinary forms of debt. It depends. If you are Lebanon and borrowing USD it’s pretty much like a corporate debt and future generations are paying it back. However, if you can print the world’s reserve currency while borrowing in it at the same time then there are different terms.
In the end it's still a debt. The nominal value in USD may not be all that important, since the Fed can manipulate it more or less at will, but you're still borrowing productivity from the future—by consuming capital—and that debt will be repaid one way or another.
The fallacy here is assuming that capital is finite over all time. It's not. Capital is created.
Of course not all economic activity creates capital at the same rate, and I do definitely agree that the type of economic activity you get during and after a recession with massive QE is likely of a lower quality than what you'd get otherwise. But it may still be that more capital (wealth) is created this way then if you allow the economy to completely shut down.
I also disagree with the premise that recessions/depressions are good because they clear out dead or dying companies. Dead or dying companies do die under such circumstances, but so do really innovative ventures that have not yet reached comfortable sustainable profitability. A mega-recession right now might take out a lot of junk, but we'd also risk losing stuff like SpaceX, Tesla, Boom Supersonic, and hundreds of small innovative startups. We might also lose the whole renewable energy revolution and any work being done on next-gen nuclear power like small modular reactors.
In short we'd lose both the bottom and the top end of the innovation curve, keeping just the boring middle.
Re: Federal Reserve balance sheet trends
#249Til, People are more than happy to sell their children for a slightly cheaper mortgage as long as you dress it up correctly.
I think this has always been the way we've paid for infrastructure. I remember reading an article about Japan. They've stopped taking on massive infrastructure projects, because the population isn't growing -- they don't want immigrants and people aren't having kids anymore. Without a future tax base to pay for infrastructure, they can't build it anymore. So things like the Tokyo subway system are "done"; no money wi…
I'd say our military budget is a good target for trimming. Even a fraction of it could be applied to infrastructure projects.
Re: Federal Reserve balance sheet trends
#250Earlier quoted context omitted.
> So, what you are saying is that government deficits are inflationary because they add money to the economy, but, on the other hand, government surplus don't retire money from the economy? Honestly I don't know what point you're trying to make, or what deficits or surpluses have to do with anything. A deficit or surplus is merely the delta between total revenues and an arbitrarily defined budget. Inflation is caused…
I'm a little late, but I want to answer for the sake of completeness. >>"Honestly I don't know what point you're trying to make, or what deficits or surpluses have to do with anything." You say "Inflation is caused by additional dollars chasing the same number of goods". We agree with that (it could be a supply problem too, but that's another subject). Now, it seems to me that we agree also that a government deficit…
> My question is: if a government deficit is adding money to the economy, what a government surplus is doing? That's the meaning of "taxes destroy money".
It's rare for the federal government to run a surplus, but it did have one for four years straight in 1998, 1999, 2000, and 2001[1]. During that that time, the monetary base increased 32%[2] and the M2 money supply increase 23%[3].
No matter how you look at it, despite the government running a surplus, the money supply continued to increase. How do you square that with your claim that surpluses remove money from the economy?
[1] https://fred.stlouisfed.org/series/FYFSD