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The benefit is not given to the banks - the money is added through asset purchases on open market sales. The Fed owns more assets (usually Treasuries) and the b

The benefit is not given to the banks - the money is added through asset purchases on open market sales. The Fed owns more assets (usually Treasuries) and the bank has cash. If you want to get in on it, buy Treasuries. Next, the Fed avoid targeting zero inflation, because it's currently impossible to hit that number so exactly, and they desire to avoid deflationary spirals. The past 150 years has shown across hundreds of countries that the current solution is vastly better than the boom and bust cycles previous, and has also demonstrated the benefit of fiat over commodity (like gold). There are ample papers showing this in the econ literature, and is the primary reason not a single country tries to use previous methods. Next, new money is added through asset purchases, not giveaways, so it's erroneous to think this money can just be handed to individuals as cash, unless perhaps those individuals were selling assets to the Fed of equal value. Next, the target is usually around 2%, and the money supply is around 2T, resulting in 400B a year, or, 2K a year per adult, which is nice, but hardly a basic income. It's more like a tax break. It's hardly going to change wealth transfers, since most people will just consume it, and the wealth would go back to companies, mostly the ones you decry above. Finally, when the Fed targets low inflation, that would dry up the basic income, and I don't think giving people such a variable and uncertain income would do well for planning and stability. Soon people would clamor and elect politicians that guaranteed the Fed would pay X per year, defeating the entire mechanism the Fed uses to stabilize markets.

ww520 11y ago
Good point you raised about FOMC directly injecting money. That's another case how the Fed benefits the banks and the Have's directly. Fed buys and sells treasury to create and destroy money but with more money created over time to encourage inflation. The extra money created are given to the treasury sellers with better pricing over time. The people without treasury are left out of the new money created. Of course the banks benefited from the extra money; FOMC only deals with the 22 big banks and the primary bond traders. Besides FOMC, loan is a bigger money creation mechanism. With 10% fractional reserve, the banks can lend out 10X of what they have. In that case interest rate dictates how much loan actually lent out and how much money actually created. By raising or lowering interest rate, the Fed increases or decreases the overall loan amount. Lowered interest rate encourages bigger loan amount, vastly increases the money supply for assets, leading to the current asset bubble. Basic income can become another mechanism for the Fed to inject money. The Fed can buy less treasury, raise rate, and give out more in basic income. People spending the extra money and companies earning them are good. Companies earning money via products and services are good. This encourages more products and services, and more employment. Instead the new money created now are given to the asset holders and locked up in assets. Edit: QE was another money creation mechanism and it hugely benefited the banks. The Fed bought assets at inflated price from the banks with created money.
- ChrisLomont 11y ago
  >The people without treasury are left out of the new money created Everybody in the US has treasuries. SS is the biggest holder of them, so when their value goes up, everyone with a SS account benefits. Next, most pension/retirement plans give another large class of adults benefits (50%+ of adults hold such plans). Remember, Fed buys from the Open Market (the "OM" in "FOMC"), which has an effect on pricing for all. > With 10% fractional reserve, the banks can lend out 10X of what they have And they also have an offsetting 10X in liabilities. It's not some free money giveaway any more than lending money to my friend does not create new money - it gives him more cash and an exact same amount of debt. Plus, if you think fractional reserve creates money (in the sense that the gain is not balanced by a matching debt), then paying it back "destroys" the exact same amount. Fractional reserve is zero sum. >Basic income can become another mechanism for the Fed to inject money. All other Fed injection mechanisms swap assets. And the amount needed for even a tiny UBI is massive compared to any other amounts added. This is not even remotely plausible.
  - ww520 11y ago
    For fractional reserve, the 10X money is what's circulated in the system. The liability on the book is just accounting. The bank doesn't have 10X money to start with. It has 1X but it's allowed to lend out upto 10X. The extra 9X is created out of thin air. Of course the 10X is the theoretical max; ultimately what controls the nX (where 1 <= n < 10) is interest rate. Lending out loan creates money circulated in the system. Paying off debt destroys money from the system. By controlling the interest rate, the Fed controls and levers the up and down of this huge money supply. That's why the Fed went into the QE programs. The increasing bad loans at the banks was choking off the money circulating. By buying non-performing loans from the banks, the Fed removed the liability off the banks' books so they had more room in their fractional requirement and be able to lend again, thus restoring the money supply.
    - ChrisLomont 11y ago
      >It has 1X but it's allowed to lend out upto 10X No, a bank cannot lend out 10X of it's deposits. That's simply wrong. Say a person deposits $1. The bank owes the person $1. If the bank thinks this $1 is unlikely to be withdrawn soon, it can lend out $0.90 (assuming a 10% reserve rate). End of story. This bank having received $1 cannot turn around and lend $10. Note that this point the bank has $0.10 of the original persons assets, owes that person $1, and is owed $0.90 by the borrower. The net position of all this is zero for the bank. Now, the borrower can deposit the borrowed 0.90 (assuming it's not spent somewhere else) into that bank, or some other bank. The process repeats. The net value to society is zero. Liquidity is added, debts are added, they balance to zero. If a bank lending money is creation of money, so is all lending. I lend Bob $10, he lends $10 to Fred, he lends $10 to Joe, and since we don't have fractional reserves, this is an infinite multiplier. However the chain of debts and assets still is zero sum. There is no difference between this and banks, except banks are required to hold some cash on hand to handle normal business transactions. >By controlling the interest rate, the Fed controls and levers the up and down of this huge money supply. Not quite - a bank will loan any money it has at the highest rate it thinks is profitable (as would any actor in the economy). No bank loans are at the target rate the Fed sets. The Fed does not control the interest rate, they set the Federal Funds Target Rate, which is a target. They do not lend money at this rate [1]. Nor do banks, except to each other, and only overnight. Banks lend money to each other overnight to meet reserves, and each pair of banks sets a rate it thinks is worthwhile, like any open market transaction. The weighted average of these loans is the "federal funds effective rate". The Fed wants this number to be the Federal Funds Target Rate, and they use FOMC to buy/sell assets to try and get banks to lend to each other at the target rate. This has almost no effect on the multiplier, since it does not change the reserve requirements, and the usual fluctuations are tiny. Nowhere does the Fed set a rate and lend at that rate, or even force others to lend at that rate. It's a target. And no where does this force banks to lend or not lend to others. Banks decide to do this at whatever rate borrowers will pay. [1] https://en.wikipedia.org/wiki/Federal_funds_rate https://en.wikipedia.org/wiki/Federal_funds_rate
humanrebar 11y ago
> If you want to get in on it, buy Treasuries. Let them eat cake? > ...they desire to avoid deflationary spirals. I've never really understood this. Dropping prices (see the recent changes in oil prices) are really good for the impoverished, at least in the short run. If we are really talking about a post-scarcity economy, wouldn't deflation indicate efficiency and be a good thing?
- pgwhalen 11y ago
  I'm the last person you would call an expert, but in a deflationary economy, people tend to hold money rather than spend it, which is bad news.
- ww520 11y ago
  Deflation in the entire economy is bad. Deflation in asset is ok as long as there are more cash offsetting the asset deflation. Basic income is one way to get more cash into the economy.
  - humanrebar 11y ago
    Wouldn't across-the-board efficiency gains look like across-the-board deflation? That is, wouldn't automation in and of itself cause hoarding? Why buy a TV this year if the one next year will be better and cheaper? Also, hoarding would theoretically only be a problem for the middle and upper classes since the working classes can't afford to save. But the middle and upper classes already hoard, more or less, when they buy and hold real estate. So what's the risk exactly?
    - ww520 11y ago
      Well, money is supposed to enable economic activities; hoarded money not used is money wasted. Yes, increased productivity and efficiency are deflational in nature. You can create N more things now with the same cost. The extra N things push price down if the amount of money in the system stays the same. That's why central banks inject more money into the system to "soak" up the extra economic activities, to maintain a constant and slightly upper price pressure. When people see the price is not decreasing despite increased efficiency, they will spend the money since it worth less tomorrow.
Kenji 11y ago
"The past 150 years has shown across hundreds of countries that the current solution is vastly better than the boom and bust cycles previous, and has also demonstrated the benefit of fiat over commodity (like gold)." Uh, no. Quite the contrary. Since the abolition of the gold standard, our economies were prone to fluctuations like they haven't been in decades. Because then the (central) banks can meddle with the quantity of our money to their liking.
- ChrisLomont 11y ago
  List of recessions in the US [1]. Tell me when they were longer and more frequent - before or after central banking. The Great Moderation [2], a period of such low economic volatility that even economists find it amazing. Did this happen before or after the gold standard was removed? IGM poll of around 100 of the top economists in the US the following [3] "If the US replaced its discretionary monetary policy regime with a gold standard, defining a "dollar" as a specific number of ounces of gold, the price-stability and employment outcomes would be better for the average American." Every single one either disagreed or strongly disagreed. 100%. Not a single dissenter. Want to really see what a gold standard would have done over the past few decades? Here [4] is gold prices for the past 100 years. The price was 220 in 1970, 2000 in 1980, 369 in 2000, 1600 in 2010, and now has dropped to 1200, with a lot of intermediate fluctuations. It's all over the map. These fluctuations are far larger than any business cycle or inflation over the same time period. If gold were the standard (i.e., the fixed value), then, since the dollar has fairly small fluctuations and more important quite stable predictability, this graph is what living costs would have done as the rest of value fluctuated this wildly. Simply put, gold is vastly more volatile than almost any economy, and certainly more volatile than the US economy. The gold standard is terrible. Finally, here [5] is a paper that follows the gold standard across 24 countries around the Great Depression, and pretty conclusive shows a strong divergence in economic health (employment, wages, growth) between those countries on the gold standard and those off it. Such effects, seen at the time, pretty much killed the gold standard as the deflationary effects became clear. Now, present your fluctuation metric before and after a gold standard and demonstrate your claimed increase. It simply is wrong. These multiple methods conclusively show it. [1] https://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States https://en.wikipedia.org/wiki/List_of_recessions_in_the_Unit... [2] https://en.wikipedia.org/wiki/Great_Moderation https://en.wikipedia.org/wiki/Great_Moderation [3] http://www.igmchicago.org/igm-economic-experts-panel/poll-results?SurveyID=SV_cw1nNUYOXSAKwrq http://www.igmchicago.org/igm-economic-experts-panel/poll-re... [4] http://www.macrotrends.net/1333/historical-gold-prices-100-year-chart http://www.macrotrends.net/1333/historical-gold-prices-100-y... [5] http://www.nber.org/chapters/c11482.pdf http://www.nber.org/chapters/c11482.pdf

ww520 11y ago

Good point you raised about FOMC directly injecting money. That's another case how the Fed benefits the banks and the Have's directly. Fed buys and sells treasury to create and destroy money but with more money created over time to encourage inflation. The extra money created are given to the treasury sellers with better pricing over time. The people without treasury are left out of the new money created. Of course the banks benefited from the extra money; FOMC only deals with the 22 big banks and the primary bond traders. Besides FOMC, loan is a bigger money creation mechanism. With 10% fractional reserve, the banks can lend out 10X of what they have. In that case interest rate dictates how much loan actually lent out and how much money actually created. By raising or lowering interest rate, the Fed increases or decreases the overall loan amount. Lowered interest rate encourages bigger loan amount, vastly increases the money supply for assets, leading to the current asset bubble. Basic income can become another mechanism for the Fed to inject money. The Fed can buy less treasury, raise rate, and give out more in basic income. People spending the extra money and companies earning them are good. Companies earning money via products and services are good. This encourages more products and services, and more employment. Instead the new money created now are given to the asset holders and locked up in assets. Edit: QE was another money creation mechanism and it hugely benefited the banks. The Fed bought assets at inflated price from the banks with created money.

ChrisLomont 11y ago
>The people without treasury are left out of the new money created Everybody in the US has treasuries. SS is the biggest holder of them, so when their value goes up, everyone with a SS account benefits. Next, most pension/retirement plans give another large class of adults benefits (50%+ of adults hold such plans). Remember, Fed buys from the Open Market (the "OM" in "FOMC"), which has an effect on pricing for all. > With 10% fractional reserve, the banks can lend out 10X of what they have And they also have an offsetting 10X in liabilities. It's not some free money giveaway any more than lending money to my friend does not create new money - it gives him more cash and an exact same amount of debt. Plus, if you think fractional reserve creates money (in the sense that the gain is not balanced by a matching debt), then paying it back "destroys" the exact same amount. Fractional reserve is zero sum. >Basic income can become another mechanism for the Fed to inject money. All other Fed injection mechanisms swap assets. And the amount needed for even a tiny UBI is massive compared to any other amounts added. This is not even remotely plausible.
- ww520 11y ago
  For fractional reserve, the 10X money is what's circulated in the system. The liability on the book is just accounting. The bank doesn't have 10X money to start with. It has 1X but it's allowed to lend out upto 10X. The extra 9X is created out of thin air. Of course the 10X is the theoretical max; ultimately what controls the nX (where 1 <= n < 10) is interest rate. Lending out loan creates money circulated in the system. Paying off debt destroys money from the system. By controlling the interest rate, the Fed controls and levers the up and down of this huge money supply. That's why the Fed went into the QE programs. The increasing bad loans at the banks was choking off the money circulating. By buying non-performing loans from the banks, the Fed removed the liability off the banks' books so they had more room in their fractional requirement and be able to lend again, thus restoring the money supply.
  - ChrisLomont 11y ago
    >It has 1X but it's allowed to lend out upto 10X No, a bank cannot lend out 10X of it's deposits. That's simply wrong. Say a person deposits $1. The bank owes the person $1. If the bank thinks this $1 is unlikely to be withdrawn soon, it can lend out $0.90 (assuming a 10% reserve rate). End of story. This bank having received $1 cannot turn around and lend $10. Note that this point the bank has $0.10 of the original persons assets, owes that person $1, and is owed $0.90 by the borrower. The net position of all this is zero for the bank. Now, the borrower can deposit the borrowed 0.90 (assuming it's not spent somewhere else) into that bank, or some other bank. The process repeats. The net value to society is zero. Liquidity is added, debts are added, they balance to zero. If a bank lending money is creation of money, so is all lending. I lend Bob $10, he lends $10 to Fred, he lends $10 to Joe, and since we don't have fractional reserves, this is an infinite multiplier. However the chain of debts and assets still is zero sum. There is no difference between this and banks, except banks are required to hold some cash on hand to handle normal business transactions. >By controlling the interest rate, the Fed controls and levers the up and down of this huge money supply. Not quite - a bank will loan any money it has at the highest rate it thinks is profitable (as would any actor in the economy). No bank loans are at the target rate the Fed sets. The Fed does not control the interest rate, they set the Federal Funds Target Rate, which is a target. They do not lend money at this rate [1]. Nor do banks, except to each other, and only overnight. Banks lend money to each other overnight to meet reserves, and each pair of banks sets a rate it thinks is worthwhile, like any open market transaction. The weighted average of these loans is the "federal funds effective rate". The Fed wants this number to be the Federal Funds Target Rate, and they use FOMC to buy/sell assets to try and get banks to lend to each other at the target rate. This has almost no effect on the multiplier, since it does not change the reserve requirements, and the usual fluctuations are tiny. Nowhere does the Fed set a rate and lend at that rate, or even force others to lend at that rate. It's a target. And no where does this force banks to lend or not lend to others. Banks decide to do this at whatever rate borrowers will pay. [1] https://en.wikipedia.org/wiki/Federal_funds_rate https://en.wikipedia.org/wiki/Federal_funds_rate

humanrebar 11y ago

> If you want to get in on it, buy Treasuries. Let them eat cake? > ...they desire to avoid deflationary spirals. I've never really understood this. Dropping prices (see the recent changes in oil prices) are really good for the impoverished, at least in the short run. If we are really talking about a post-scarcity economy, wouldn't deflation indicate efficiency and be a good thing?

pgwhalen 11y ago
I'm the last person you would call an expert, but in a deflationary economy, people tend to hold money rather than spend it, which is bad news.
ww520 11y ago
Deflation in the entire economy is bad. Deflation in asset is ok as long as there are more cash offsetting the asset deflation. Basic income is one way to get more cash into the economy.
- humanrebar 11y ago
  Wouldn't across-the-board efficiency gains look like across-the-board deflation? That is, wouldn't automation in and of itself cause hoarding? Why buy a TV this year if the one next year will be better and cheaper? Also, hoarding would theoretically only be a problem for the middle and upper classes since the working classes can't afford to save. But the middle and upper classes already hoard, more or less, when they buy and hold real estate. So what's the risk exactly?
  - ww520 11y ago
    Well, money is supposed to enable economic activities; hoarded money not used is money wasted. Yes, increased productivity and efficiency are deflational in nature. You can create N more things now with the same cost. The extra N things push price down if the amount of money in the system stays the same. That's why central banks inject more money into the system to "soak" up the extra economic activities, to maintain a constant and slightly upper price pressure. When people see the price is not decreasing despite increased efficiency, they will spend the money since it worth less tomorrow.

Kenji 11y ago

"The past 150 years has shown across hundreds of countries that the current solution is vastly better than the boom and bust cycles previous, and has also demonstrated the benefit of fiat over commodity (like gold)." Uh, no. Quite the contrary. Since the abolition of the gold standard, our economies were prone to fluctuations like they haven't been in decades. Because then the (central) banks can meddle with the quantity of our money to their liking.

ChrisLomont 11y ago
List of recessions in the US [1]. Tell me when they were longer and more frequent - before or after central banking. The Great Moderation [2], a period of such low economic volatility that even economists find it amazing. Did this happen before or after the gold standard was removed? IGM poll of around 100 of the top economists in the US the following [3] "If the US replaced its discretionary monetary policy regime with a gold standard, defining a "dollar" as a specific number of ounces of gold, the price-stability and employment outcomes would be better for the average American." Every single one either disagreed or strongly disagreed. 100%. Not a single dissenter. Want to really see what a gold standard would have done over the past few decades? Here [4] is gold prices for the past 100 years. The price was 220 in 1970, 2000 in 1980, 369 in 2000, 1600 in 2010, and now has dropped to 1200, with a lot of intermediate fluctuations. It's all over the map. These fluctuations are far larger than any business cycle or inflation over the same time period. If gold were the standard (i.e., the fixed value), then, since the dollar has fairly small fluctuations and more important quite stable predictability, this graph is what living costs would have done as the rest of value fluctuated this wildly. Simply put, gold is vastly more volatile than almost any economy, and certainly more volatile than the US economy. The gold standard is terrible. Finally, here [5] is a paper that follows the gold standard across 24 countries around the Great Depression, and pretty conclusive shows a strong divergence in economic health (employment, wages, growth) between those countries on the gold standard and those off it. Such effects, seen at the time, pretty much killed the gold standard as the deflationary effects became clear. Now, present your fluctuation metric before and after a gold standard and demonstrate your claimed increase. It simply is wrong. These multiple methods conclusively show it. [1] https://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States https://en.wikipedia.org/wiki/List_of_recessions_in_the_Unit... [2] https://en.wikipedia.org/wiki/Great_Moderation https://en.wikipedia.org/wiki/Great_Moderation [3] http://www.igmchicago.org/igm-economic-experts-panel/poll-results?SurveyID=SV_cw1nNUYOXSAKwrq http://www.igmchicago.org/igm-economic-experts-panel/poll-re... [4] http://www.macrotrends.net/1333/historical-gold-prices-100-year-chart http://www.macrotrends.net/1333/historical-gold-prices-100-y... [5] http://www.nber.org/chapters/c11482.pdf http://www.nber.org/chapters/c11482.pdf