6 ms·

Fed, worried about recovery, will buy US debt

21 points by startuprules 16y ago

startuprules 16y ago
massive printing of dollars, here we go!
- gte910h 16y ago
  Cause that's really dangerous when you're suffering deflation....you know, when you take actions to correct this situation.
  - startuprules 16y ago
    dangerous only for the banks.
    - gte910h 16y ago
      Howso? You mean the owners of the fed/risk? I'd honestly say any additional risk from this purchase is counterbalanced in the reduced risk in their other holdings.
      - startuprules 16y ago
        Deflation is dangerous only for the entities that own large amounts of real estate/stocks. For normal people, deflation allows their buying power to increase. The government printing is akin to stealing from your labor right then and there.
        nerfhammer 16y ago
        Deflation allows personal buying power to increase holding income constant. Deflation is defined as a decrease in prices. You know what else counts as a price? The price of labor. I.e., wages. Average wages decreases under deflation, just like any other price. Deflation is not a magical money machine that makes us all richer.
        startuprules 16y ago
        1.) The US wage stagnation/decline for the last 10-15 years has been caused by globalization of labor/emergence of China/India. It is not a recent phenomenon. 2.) If you think government printing money will increase/steady your wage, look no further then the last bailout/printing. The banks/shareholders got all the money. You got lost wages and lost jobs. On a side note, man, there's alot of sheeples on this board. Do you all like get up early in the morning to go to work and get robbed?
        jbooth 16y ago
        You're getting downmodded because you're expressing views on economics that are so far off that they "aren't even wrong", and doing them in a way that implies you're smarter than everyone else.
        startuprules 16y ago
        Please, then tell me why my arguments are wrong. Don't be offended just because you're one of those sheeples that go to work every day that have to withstand long commute and increasing workloads, so that you can be effectively taxed at 70% after inflation.
        jbooth 16y ago
        To start with, noone in the US is taxed at 70%. That's the "wrong" part. Second, inflation doesn't even come into play with your tax bill, except maybe in a very tiny way in between withholding and tax day. And that inflation figure is currently about zero. So "taxed at X% after inflation" is meaningless. That's the "Not even wrong" part.
        yummyfajitas 16y ago
        Not to mention the use of the word "sheeple". [edit: just realized I agree with jbooth on something. I don't know if that's ever happened before.]
        nanairo 16y ago
        True, it allows people to buy more tomorrow with the money they have today. So what happens? They don't spend the money today waiting for tomorrow. But then tomorrow they realise that if they wait a little longer they'd spend even less. The end result is that nobody spends for anything that is not absolutely necessary. Hence most companies have an excess of supply: they fire people, and discount they current production. Now that more people are out of a job and therefore can't spend much, and the discounts have driven inflation even deeper, even less people spend their money. It's a vicious cycle. It's what's happened to Japan for the last decade, and it's not a pretty place to be in.
        startuprules 16y ago
        Yes, and we are going to have economic correction regardless of whether the government print or not. Printing just makes the correction even greater and the suffering more pronounced.
        nanairo 16y ago
        I am not arguing that a correction is not needed. Is the speed with which you do it that creates problems.
        startuprules 16y ago
        So no printing (let the market correct itself) or printing (let the government siphon off taxpayer money to rich, pretend it's for the good of people)
    - stretchwithme 16y ago
      oh, no, we're paying less for things. help! the massive housing bubble and it inflationary effects HAD to collapse. those who waited out the insanity deserve lower prices. those who were foolish do not deserve to have the rest of us prop up their property values, although our government is foolishly backing every bad bet out there.
      - itsgoats 16y ago
        I'd like to say thank you, stretchwithme, for all of us who saved enough to buy a house, responsibly, in what just happened to be the middle of last decade and now have cause to sell (moving jobs because the economy stinks). We so deserve to seriously be screwed over because of our timing. Thank you US government. Thank you stretchwithme, your sentiments help the situation tremendously. Surprisingly, there were actually many people who bought a house in 2003-2005 because they had a down payment at that time and they had jobs and they bought what they could afford.
        startuprules 16y ago
        Should we feel sorry for you because you don't have the patience to wait? Because you weren't smart enough to realize that maybe housing prices doubling in 1-2 years don't equate? Did someone make you buy a house at gunpoint?
        rdtsc 16y ago
        > who saved enough to buy a house, If you saved enough to buy a house then live in your house. If you're moving around then don't buy houses. They are places to live. Your problem is that you want them to be investment vehicles to increase your wealth. Well, if they are investment vehicles then you also have to accept that you will make a bad bet and will lose in value. You want your cake and eat it too. It is like stock investors crying that Intel shares lost value. Well, then they shouldn't have invested in Intel, they should have put their money in a savings account.
        istari 16y ago
        You seem to think because you had a down payment, had a job, bought a house you could afford, you "deserve" to be screwed over less by a falling housing market, because you were "responsible". Just the opposite! The migrant field worker who got a 0% down interest only loan on a 500K house is far less "deserving" of the screw than you, because he has no money to be screwed out of.
    - ww520 16y ago
      Deflation is bad for debt issuers. Guess who's holding the biggest amount of debt?
- fuzzmeister 16y ago
  "The decision to buy government debt, using proceeds from Fed investments in mortgage bonds..." If the money is coming from mortgage investments, I don't believe this action is actually increasing the money supply. Knowing the complexities of the Fed, though, I could certainly be wrong.
ww520 16y ago
Does this mean the foreigners have lost faith in the US government and stop buying the US debt? The Fed buying US debt is like the left hand buying from the right hand.
- mechanical_fish 16y ago
  No, I believe it has almost nothing to do with foreign investment. (Incidentally, foreigners have awesome faith in the US government, as evidenced by the fact that interest rates are as low as they have ever been, and -- frighteningly -- perhaps as low as they can be.) No, the government buying its own debt is a very famous accounting trick designed to create more money in the economy. This act is the basis of the fractional reserve system, which in turn is the basis of all modern money. The Federal Reserve bank buys bonds from bondholders (either newly issued bonds from the government or bonds from my safe deposit box). And in return it puts money in a bank account. Where does the money come from? It is just numbers in a database. The Fed just edits the database. Only the central government, which controls the currency, has the power to create money out of thin air in this way, but that power is very important. (In other times, when the economy is really hot and inflation is soaring and we need to cool down, the Fed does the opposite: It raises interest rates, which causes people to want to buy bonds to get more interest, which causes people to spend their cash for those bonds. And, as each bond is bought, the Fed just erases the cash from bank accounts. The money vanishes! Remember, money is just a score in a game, the game of "keeping the economy working so that people can eat". It's not made of metal or anything. That was the old way, the way that didn't work.) You can't get the same effect by selling bonds to England, because then England will pay for the bonds in dollars, and England can't create dollars. They have to buy dollars with pounds. So the total supply of dollars in the world would remain constant, which is not the point of this exercise. (Now if I really understood econ we could go on to talk about why this little exercise might not work this time, about the "liquidity trap" and the "zero lower bound". But my time is up.)
  - yummyfajitas 16y ago
    (Incidentally, foreigners have awesome faith in the US government,... This could also reflect a lack of faith in other governments rather than faith in the US government. If assorted European debt became 10x more risky but US debt only became 5x more risky, that would cause a flight into US debt.
stretchwithme 16y ago
i suppose it makes more sense to print money and lend it to itself than lending it to banks to lend to itself
- startuprules 16y ago
  Why waste all that paper/electronic bits? Just enact a large tax increase...it's the same thing. Oh, but then the American sheeples will notice.
startuprules 16y ago
The US government is printing/robbing you of your savings. Don't believe it for a second it will trickle down to you; the last batch of printing/bailout went to banks and shareholders. On a side note, man, there's alot of sheeples on this board. Do you all like get up early in the morning to go to work and get robbed?
dstein 16y ago
It's the financial equivalent of eating your own poop.
mortenjorck 16y ago
Does this give the Fed more influence over treasury note yields? If it were to start buying in higher volume, I would think so.

21 points by startuprules 16y ago

startuprules 16y ago

massive printing of dollars, here we go!

gte910h 16y ago
Cause that's really dangerous when you're suffering deflation....you know, when you take actions to correct this situation.
- startuprules 16y ago
  dangerous only for the banks.
  - gte910h 16y ago
    Howso? You mean the owners of the fed/risk? I'd honestly say any additional risk from this purchase is counterbalanced in the reduced risk in their other holdings.
    - startuprules 16y ago
      Deflation is dangerous only for the entities that own large amounts of real estate/stocks. For normal people, deflation allows their buying power to increase. The government printing is akin to stealing from your labor right then and there.
      - nerfhammer 16y ago
        Deflation allows personal buying power to increase holding income constant. Deflation is defined as a decrease in prices. You know what else counts as a price? The price of labor. I.e., wages. Average wages decreases under deflation, just like any other price. Deflation is not a magical money machine that makes us all richer.
        startuprules 16y ago
        1.) The US wage stagnation/decline for the last 10-15 years has been caused by globalization of labor/emergence of China/India. It is not a recent phenomenon. 2.) If you think government printing money will increase/steady your wage, look no further then the last bailout/printing. The banks/shareholders got all the money. You got lost wages and lost jobs. On a side note, man, there's alot of sheeples on this board. Do you all like get up early in the morning to go to work and get robbed?
        jbooth 16y ago
        You're getting downmodded because you're expressing views on economics that are so far off that they "aren't even wrong", and doing them in a way that implies you're smarter than everyone else.
        startuprules 16y ago
        Please, then tell me why my arguments are wrong. Don't be offended just because you're one of those sheeples that go to work every day that have to withstand long commute and increasing workloads, so that you can be effectively taxed at 70% after inflation.
        jbooth 16y ago
        To start with, noone in the US is taxed at 70%. That's the "wrong" part. Second, inflation doesn't even come into play with your tax bill, except maybe in a very tiny way in between withholding and tax day. And that inflation figure is currently about zero. So "taxed at X% after inflation" is meaningless. That's the "Not even wrong" part.
        yummyfajitas 16y ago
        Not to mention the use of the word "sheeple". [edit: just realized I agree with jbooth on something. I don't know if that's ever happened before.]
      - nanairo 16y ago
        True, it allows people to buy more tomorrow with the money they have today. So what happens? They don't spend the money today waiting for tomorrow. But then tomorrow they realise that if they wait a little longer they'd spend even less. The end result is that nobody spends for anything that is not absolutely necessary. Hence most companies have an excess of supply: they fire people, and discount they current production. Now that more people are out of a job and therefore can't spend much, and the discounts have driven inflation even deeper, even less people spend their money. It's a vicious cycle. It's what's happened to Japan for the last decade, and it's not a pretty place to be in.
        startuprules 16y ago
        Yes, and we are going to have economic correction regardless of whether the government print or not. Printing just makes the correction even greater and the suffering more pronounced.
        nanairo 16y ago
        I am not arguing that a correction is not needed. Is the speed with which you do it that creates problems.
        startuprules 16y ago
        So no printing (let the market correct itself) or printing (let the government siphon off taxpayer money to rich, pretend it's for the good of people)
  - stretchwithme 16y ago
    oh, no, we're paying less for things. help! the massive housing bubble and it inflationary effects HAD to collapse. those who waited out the insanity deserve lower prices. those who were foolish do not deserve to have the rest of us prop up their property values, although our government is foolishly backing every bad bet out there.
    - itsgoats 16y ago
      I'd like to say thank you, stretchwithme, for all of us who saved enough to buy a house, responsibly, in what just happened to be the middle of last decade and now have cause to sell (moving jobs because the economy stinks). We so deserve to seriously be screwed over because of our timing. Thank you US government. Thank you stretchwithme, your sentiments help the situation tremendously. Surprisingly, there were actually many people who bought a house in 2003-2005 because they had a down payment at that time and they had jobs and they bought what they could afford.
      - startuprules 16y ago
        Should we feel sorry for you because you don't have the patience to wait? Because you weren't smart enough to realize that maybe housing prices doubling in 1-2 years don't equate? Did someone make you buy a house at gunpoint?
      - rdtsc 16y ago
        > who saved enough to buy a house, If you saved enough to buy a house then live in your house. If you're moving around then don't buy houses. They are places to live. Your problem is that you want them to be investment vehicles to increase your wealth. Well, if they are investment vehicles then you also have to accept that you will make a bad bet and will lose in value. You want your cake and eat it too. It is like stock investors crying that Intel shares lost value. Well, then they shouldn't have invested in Intel, they should have put their money in a savings account.
      - istari 16y ago
        You seem to think because you had a down payment, had a job, bought a house you could afford, you "deserve" to be screwed over less by a falling housing market, because you were "responsible". Just the opposite! The migrant field worker who got a 0% down interest only loan on a 500K house is far less "deserving" of the screw than you, because he has no money to be screwed out of.
  - ww520 16y ago
    Deflation is bad for debt issuers. Guess who's holding the biggest amount of debt?
fuzzmeister 16y ago
"The decision to buy government debt, using proceeds from Fed investments in mortgage bonds..." If the money is coming from mortgage investments, I don't believe this action is actually increasing the money supply. Knowing the complexities of the Fed, though, I could certainly be wrong.

ww520 16y ago

Does this mean the foreigners have lost faith in the US government and stop buying the US debt? The Fed buying US debt is like the left hand buying from the right hand.

mechanical_fish 16y ago
No, I believe it has almost nothing to do with foreign investment. (Incidentally, foreigners have awesome faith in the US government, as evidenced by the fact that interest rates are as low as they have ever been, and -- frighteningly -- perhaps as low as they can be.) No, the government buying its own debt is a very famous accounting trick designed to create more money in the economy. This act is the basis of the fractional reserve system, which in turn is the basis of all modern money. The Federal Reserve bank buys bonds from bondholders (either newly issued bonds from the government or bonds from my safe deposit box). And in return it puts money in a bank account. Where does the money come from? It is just numbers in a database. The Fed just edits the database. Only the central government, which controls the currency, has the power to create money out of thin air in this way, but that power is very important. (In other times, when the economy is really hot and inflation is soaring and we need to cool down, the Fed does the opposite: It raises interest rates, which causes people to want to buy bonds to get more interest, which causes people to spend their cash for those bonds. And, as each bond is bought, the Fed just erases the cash from bank accounts. The money vanishes! Remember, money is just a score in a game, the game of "keeping the economy working so that people can eat". It's not made of metal or anything. That was the old way, the way that didn't work.) You can't get the same effect by selling bonds to England, because then England will pay for the bonds in dollars, and England can't create dollars. They have to buy dollars with pounds. So the total supply of dollars in the world would remain constant, which is not the point of this exercise. (Now if I really understood econ we could go on to talk about why this little exercise might not work this time, about the "liquidity trap" and the "zero lower bound". But my time is up.)
- yummyfajitas 16y ago
  (Incidentally, foreigners have awesome faith in the US government,... This could also reflect a lack of faith in other governments rather than faith in the US government. If assorted European debt became 10x more risky but US debt only became 5x more risky, that would cause a flight into US debt.

stretchwithme 16y ago

i suppose it makes more sense to print money and lend it to itself than lending it to banks to lend to itself

startuprules 16y ago
Why waste all that paper/electronic bits? Just enact a large tax increase...it's the same thing. Oh, but then the American sheeples will notice.

startuprules 16y ago

The US government is printing/robbing you of your savings. Don't believe it for a second it will trickle down to you; the last batch of printing/bailout went to banks and shareholders. On a side note, man, there's alot of sheeples on this board. Do you all like get up early in the morning to go to work and get robbed?

dstein 16y ago

It's the financial equivalent of eating your own poop.

mortenjorck 16y ago

Does this give the Fed more influence over treasury note yields? If it were to start buying in higher volume, I would think so.