6 ms·

There's a difference. The govt doesn't have this ability to print money and pay debt. The Fed does. Which means that the Fed has been keeping interest rates al

by NTDF9 7y ago

There's a difference. The govt doesn't have this ability to print money and pay debt. The Fed does. Which means that the Fed has been keeping interest rates already artificially low by printing money. It'll take one misstep or one recession for the debt requirements to be so high that the Fed will have to make a choice between keeping rates low, causing massive inflation vs high causing massive drop in gdp and jobs. The govt will have to make a choice between cutting services vs paying the debt.

maxerickson 7y ago
The government "prints money" when it sells treasuries on the public market. The Fed creates most of the money, but it isn't the only mechanism.
raphaelj 7y ago
The Fed might be independent in the law, but the govt makes the law.
ikeboy 7y ago
The Fed can't directly influence real interest rates, only nominal. What exactly are you claiming interest rates are "artificially low" compared to? The scenario you describe can't happen. If money is so easy that it's leading to high inflation above the target, then tightening money until no excess inflation happens won't cause a drop in employment. Think about it like this: either the extra money being printed is going to inflation and propping up prices, or it's enabling more jobs. If the marginal extra dollar is adding to inflation, then removing it won't hurt jobs.
QuesnayJr 7y ago
The government can overrule the Fed, if it really wants to.
danharaj 7y ago
The Treasury can mint new money at the behest of the Executive.
pjc50 7y ago
The normal management of inflation by raising interest rates works by slowing economic growth. There's no reason to raise rates in a recession.
- NTDF9 7y ago
  In a recession: People lose jobs Govt pays out more social security benefits Govt earns lesser tax revenue Govt interest payments on bonds are still at pre recession levels So, govt has to issue more bonds Nobody has the money to pay for those bonds Thus, interest rates would naturally rise. The fed could print money to buy bonds causing inflation or the fed could not print money causing rise in interest rates and furthering economic decline. This is how the deficits have out the fed between a rock and a hard place.
  - pjc50 7y ago
    True up to "nobody has the money to pay for those bonds": there's often a flight to safety in recessions of people moving money out of the stock market. Plus all the big international investors. Shortage of buyers is a risk but not one we've been close to so far. One lesson of QE seems to be that the Fed can print money in a recession without causing inflation. Or at least only inflation of asset prices, not wage/consumer goods inflation.
    - NTDF9 7y ago
      > One lesson of QE seems to be that the Fed can print money in a recession without causing inflation. Or at least only inflation of asset prices, not wage/consumer goods inflation. You nailed it. There was inflation with the last QE. We just changed what counts towards inflation.
  - AnimalMuppet 7y ago
    Historically, recessions have not played out the way you describe. (Never, IIRC.) So I think your theory is flawed.
    - 7y ago
cthalupa 7y ago
>The govt doesn't have this ability to print money and pay debt. The Fed does. The Federal Reserve is part of the government. The Board of Governors is an independent government agency, with members appointed by the President. The individual banks are set up more like private corporations, but it's the Board of Governors that set the orders for new money being minted. Saying that it isn't the government that has the ability to print money and pay debt when this is the case is a little obtuse.

by NTDF9 7y ago

maxerickson 7y ago

The government "prints money" when it sells treasuries on the public market. The Fed creates most of the money, but it isn't the only mechanism.

raphaelj 7y ago

The Fed might be independent in the law, but the govt makes the law.

ikeboy 7y ago

The Fed can't directly influence real interest rates, only nominal. What exactly are you claiming interest rates are "artificially low" compared to? The scenario you describe can't happen. If money is so easy that it's leading to high inflation above the target, then tightening money until no excess inflation happens won't cause a drop in employment. Think about it like this: either the extra money being printed is going to inflation and propping up prices, or it's enabling more jobs. If the marginal extra dollar is adding to inflation, then removing it won't hurt jobs.

QuesnayJr 7y ago

The government can overrule the Fed, if it really wants to.

danharaj 7y ago

The Treasury can mint new money at the behest of the Executive.

pjc50 7y ago

The normal management of inflation by raising interest rates works by slowing economic growth. There's no reason to raise rates in a recession.

NTDF9 7y ago
In a recession: People lose jobs Govt pays out more social security benefits Govt earns lesser tax revenue Govt interest payments on bonds are still at pre recession levels So, govt has to issue more bonds Nobody has the money to pay for those bonds Thus, interest rates would naturally rise. The fed could print money to buy bonds causing inflation or the fed could not print money causing rise in interest rates and furthering economic decline. This is how the deficits have out the fed between a rock and a hard place.
- pjc50 7y ago
  True up to "nobody has the money to pay for those bonds": there's often a flight to safety in recessions of people moving money out of the stock market. Plus all the big international investors. Shortage of buyers is a risk but not one we've been close to so far. One lesson of QE seems to be that the Fed can print money in a recession without causing inflation. Or at least only inflation of asset prices, not wage/consumer goods inflation.
  - NTDF9 7y ago
    > One lesson of QE seems to be that the Fed can print money in a recession without causing inflation. Or at least only inflation of asset prices, not wage/consumer goods inflation. You nailed it. There was inflation with the last QE. We just changed what counts towards inflation.
- AnimalMuppet 7y ago
  Historically, recessions have not played out the way you describe. (Never, IIRC.) So I think your theory is flawed.
  - 7y ago

cthalupa 7y ago

>The govt doesn't have this ability to print money and pay debt. The Fed does. The Federal Reserve is part of the government. The Board of Governors is an independent government agency, with members appointed by the President. The individual banks are set up more like private corporations, but it's the Board of Governors that set the orders for new money being minted. Saying that it isn't the government that has the ability to print money and pay debt when this is the case is a little obtuse.