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> The Fed does not have the tools at its disposal that it did in 2008, they have been exhausted. That hasn't been exhausted even in the slightest. The Fed has

> The Fed does not have the tools at its disposal that it did in 2008, they have been exhausted. That hasn't been exhausted even in the slightest. The Fed has the exact same tool at its disposal as it did in 2008: it controls the global reserve currency and can run an annual trillion dollar QE program for years as necessary, forcing the rest of the world to partially foot the bill of that QE program to the benefit of the US economy. The Fed took rates to zero for seven years and utilized multiple QE rounds to reinflate the economy and asset prices. The same exact approach is at its disposal heading into the next recession.

throwaway5752 7y ago
Maybe I'm a crazy for taking the state of the fed funds rate, the budget deficit, and the Fed's balance sheet into account? We can print money, but so far the USD hasn't reflected any sort of consequence for that. They can do a QE program, but will other actors accept the implicit loss on their treasury holdings? I can think of one major player there that is a lot less likely to do so now.
- dageshi 7y ago
  What can the chinese do exactly? Sell all their USD treasuries? Sure, but what do they do with the money then? The only other currency big enough to absorb those kind of flows is the euro which would spike the euro exchange rate with the dollar to extremely painful levels for the EU, probably causing a deep recession in the EU but doing nothing to the US.
  - HillaryBriss 7y ago
    > Sell all their USD treasuries? Last I read they were only holding about 1 trillion in USD treasuries. Selling all of that would not inflict much damage on the US economy or government. If there's one superior skill the US Treasury and US Fed have it's selling/buying even more massive amounts of debt than that. Markets are used to it. So, a $1 trillion dollar bond sale event might hurt for a short while, but it wouldn't really be all that heavy.
- adventured 7y ago
  The Fed can replace / deal with China's treasury holdings relatively easily at this point, especially given the strength of the dollar. While $15t in global paper is yielding nothing or worse, the US is still yielding something and is still largely regarded as entirely safe by investors. China is no longer a threat to the treasury market re selling, even though more aggressive selling on their part would definitely cause some real short-term turmoil. They can rock the boat, they can't tip it over and the Fed would stabilize things quickly in reaction. Over the next ten years the public US debt will hit $32 trillion give or take (possibly closer to $35t; I'm expecting a +$3.5t deficit in just two years in the next recession), about 1.2x to 1.3x GDP at that point. China's share of that $32-$35 trillion will be a mere 3% or lower. By the day their position becomes less meaningful (at this point the US Government is running up enough new public debt to equal China's treasury holdings every year, and that's before the recession blows out the deficit).
  - sremani 7y ago
    What exactly is wrong with this comment for the kind of downvotes? At personal level, I find adventure one of the most level headed and dispassionate commentators esp. about Finance/Business/Geopolitics. The whole China treasure holdings argument is at the best paper tiger. The argument is debunked by every respectable finance commentator.
  - ethbro 7y ago
    Curious question, because international government currency flows are still something that flumox me. What are China's options if it sells US Treasuries? If it simply parks that money internally, what does that do?
- taf2 7y ago
  Additionally, most of the corporations are cash rich right now and own much more of their own companies allowing them to both dip into those reserves and sell off more of their companies to stay strong through the recession. I'm not worried... he's not worried either: https://www.youtube.com/watch?v=NJodqhzqPKQ https://www.youtube.com/watch?v=NJodqhzqPKQ
  - gridlockd 7y ago
    Corporate cash is $1.8 trillion, but that's against $2 trillion of debt maturing in the next five years and $15 trillion total. I'm worried... he's probably worried as well https://www.bloomberg.com/news/articles/2019-05-09/corporate-debt-next-pain-point-in-u-s-big-short-s-eisman-says https://www.bloomberg.com/news/articles/2019-05-09/corporate...
- AnimalMuppet 7y ago
  What consequence would you expect? Inflation? The Fed would probably welcome inflation right now. And, how does QE cause other players to lose their treasury holdings?
  - fuzz4lyfe 7y ago
    >The Fed would probably welcome inflation right now. I feel like this while correct will look funny in the context of history. I believe inflation will explode in the next 5 years with near zero interest rates and the fed printing money for all the programs we hear about during the recent debates.
    - ethbro 7y ago
      Inflation is a consequence of money spent foolishly. The same arguments were made against the New Deal. Time will tell whether recapitalizing the American educational system and/or cost-limiting health care is wise or foolish.
      - pdonis 7y ago
        > Inflation is a consequence of money spent foolishly No, it's a consequence of printing money as soon as the newly printed money gets out into the economy. The only reason the previous rounds of QE in the last decade didn't cause inflation was that practically all of it stayed in the banks' accounts at the Fed and never got loaned out, so it never actually got into the economy. > The same arguments were made against the New Deal. Yes, and they were valid then too. The New Deal didn't work; what restarted the US economy was World War II.
        ethbro 7y ago
        Inflation is size of economy / money supply. Printing more money doesn't inexorably produce inflation, for a lot of reasons. If the money printed is used unwisely, in ways that do not grow the economy, then it certainly does.
cestith 7y ago
Oil prices are lower and the euro is looking good as a second reserve currency.
- ethbro 7y ago
  That's a big chunk of pie to remove without some turmoil. If Brexit were behind us, no doubt. But that's a lot of uncertainty tainting the euro. https://upload.wikimedia.org/wikipedia/commons/thumb/5/5f/2015_GDP_%28nominal%29_in_EU.svg/1280px-2015_GDP_%28nominal%29_in_EU.svg.png https://upload.wikimedia.org/wikipedia/commons/thumb/5/5f/20...
pessimizer 7y ago
> The Fed took rates to zero for seven years And it can't do that as effectively again. Treasury bonds were at 8% back then, now they're at 4%.
Ericson2314 7y ago
IMO QE is insanely regressive because of most people's non participation in the financial system, and thus is a "supply side wolf in keynsian clothing". Looking at all the unprofitable startups and other investment vehicles of the current cycle, combined with uneven increases in productivity and tenuous shitty jobs being the bulk of job growth shows how we've clearly don't have the demand and the money isn't trickling down enough to make it. With interest rates near zero, and the old monitarist avenues generally exhausted with this procyclic hangover, we have nothing left to do but the real ask fiscal shit jobs guarantee or UBI. Hopefully people realize work sucks and it would be nice if computers were used to their full potential so we get UBI instead and then we can write expert systems and reduce meanial labor and other useful shit.

throwaway5752 7y ago

Maybe I'm a crazy for taking the state of the fed funds rate, the budget deficit, and the Fed's balance sheet into account? We can print money, but so far the USD hasn't reflected any sort of consequence for that. They can do a QE program, but will other actors accept the implicit loss on their treasury holdings? I can think of one major player there that is a lot less likely to do so now.

dageshi 7y ago
What can the chinese do exactly? Sell all their USD treasuries? Sure, but what do they do with the money then? The only other currency big enough to absorb those kind of flows is the euro which would spike the euro exchange rate with the dollar to extremely painful levels for the EU, probably causing a deep recession in the EU but doing nothing to the US.
- HillaryBriss 7y ago
  > Sell all their USD treasuries? Last I read they were only holding about 1 trillion in USD treasuries. Selling all of that would not inflict much damage on the US economy or government. If there's one superior skill the US Treasury and US Fed have it's selling/buying even more massive amounts of debt than that. Markets are used to it. So, a $1 trillion dollar bond sale event might hurt for a short while, but it wouldn't really be all that heavy.
adventured 7y ago
The Fed can replace / deal with China's treasury holdings relatively easily at this point, especially given the strength of the dollar. While $15t in global paper is yielding nothing or worse, the US is still yielding something and is still largely regarded as entirely safe by investors. China is no longer a threat to the treasury market re selling, even though more aggressive selling on their part would definitely cause some real short-term turmoil. They can rock the boat, they can't tip it over and the Fed would stabilize things quickly in reaction. Over the next ten years the public US debt will hit $32 trillion give or take (possibly closer to $35t; I'm expecting a +$3.5t deficit in just two years in the next recession), about 1.2x to 1.3x GDP at that point. China's share of that $32-$35 trillion will be a mere 3% or lower. By the day their position becomes less meaningful (at this point the US Government is running up enough new public debt to equal China's treasury holdings every year, and that's before the recession blows out the deficit).
- sremani 7y ago
  What exactly is wrong with this comment for the kind of downvotes? At personal level, I find adventure one of the most level headed and dispassionate commentators esp. about Finance/Business/Geopolitics. The whole China treasure holdings argument is at the best paper tiger. The argument is debunked by every respectable finance commentator.
- ethbro 7y ago
  Curious question, because international government currency flows are still something that flumox me. What are China's options if it sells US Treasuries? If it simply parks that money internally, what does that do?
taf2 7y ago
Additionally, most of the corporations are cash rich right now and own much more of their own companies allowing them to both dip into those reserves and sell off more of their companies to stay strong through the recession. I'm not worried... he's not worried either: https://www.youtube.com/watch?v=NJodqhzqPKQ https://www.youtube.com/watch?v=NJodqhzqPKQ
- gridlockd 7y ago
  Corporate cash is $1.8 trillion, but that's against $2 trillion of debt maturing in the next five years and $15 trillion total. I'm worried... he's probably worried as well https://www.bloomberg.com/news/articles/2019-05-09/corporate-debt-next-pain-point-in-u-s-big-short-s-eisman-says https://www.bloomberg.com/news/articles/2019-05-09/corporate...
AnimalMuppet 7y ago
What consequence would you expect? Inflation? The Fed would probably welcome inflation right now. And, how does QE cause other players to lose their treasury holdings?
- fuzz4lyfe 7y ago
  >The Fed would probably welcome inflation right now. I feel like this while correct will look funny in the context of history. I believe inflation will explode in the next 5 years with near zero interest rates and the fed printing money for all the programs we hear about during the recent debates.
  - ethbro 7y ago
    Inflation is a consequence of money spent foolishly. The same arguments were made against the New Deal. Time will tell whether recapitalizing the American educational system and/or cost-limiting health care is wise or foolish.
    - pdonis 7y ago
      > Inflation is a consequence of money spent foolishly No, it's a consequence of printing money as soon as the newly printed money gets out into the economy. The only reason the previous rounds of QE in the last decade didn't cause inflation was that practically all of it stayed in the banks' accounts at the Fed and never got loaned out, so it never actually got into the economy. > The same arguments were made against the New Deal. Yes, and they were valid then too. The New Deal didn't work; what restarted the US economy was World War II.
      - ethbro 7y ago
        Inflation is size of economy / money supply. Printing more money doesn't inexorably produce inflation, for a lot of reasons. If the money printed is used unwisely, in ways that do not grow the economy, then it certainly does.

cestith 7y ago

Oil prices are lower and the euro is looking good as a second reserve currency.

ethbro 7y ago
That's a big chunk of pie to remove without some turmoil. If Brexit were behind us, no doubt. But that's a lot of uncertainty tainting the euro. https://upload.wikimedia.org/wikipedia/commons/thumb/5/5f/2015_GDP_%28nominal%29_in_EU.svg/1280px-2015_GDP_%28nominal%29_in_EU.svg.png https://upload.wikimedia.org/wikipedia/commons/thumb/5/5f/20...

pessimizer 7y ago

> The Fed took rates to zero for seven years And it can't do that as effectively again. Treasury bonds were at 8% back then, now they're at 4%.

Ericson2314 7y ago

IMO QE is insanely regressive because of most people's non participation in the financial system, and thus is a "supply side wolf in keynsian clothing". Looking at all the unprofitable startups and other investment vehicles of the current cycle, combined with uneven increases in productivity and tenuous shitty jobs being the bulk of job growth shows how we've clearly don't have the demand and the money isn't trickling down enough to make it. With interest rates near zero, and the old monitarist avenues generally exhausted with this procyclic hangover, we have nothing left to do but the real ask fiscal shit jobs guarantee or UBI. Hopefully people realize work sucks and it would be nice if computers were used to their full potential so we get UBI instead and then we can write expert systems and reduce meanial labor and other useful shit.