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The Federal Reserve (the Fed), the central bank of the United States, prints money and buys the national debt (treasuries) in order to increase bank reserves an

The Federal Reserve (the Fed), the central bank of the United States, prints money and buys the national debt (treasuries) in order to increase bank reserves and stimulate the economy. The Fed is doing this to such an extent that they are now monetizing (printing and buying national debt) 70% of all the debt issued since October, roughly when they started . They refuse to call it quantitative easing (QE) (despite it meeting the literal definition of QE). It's why markets are going up despite zero increase in overall corporate profits and mediocre economic growth. Endless artificial stimulus like this, is why the economy shuffles from bubble to bust.

acdanger 7y ago
Admittedly, I haven't read the article yet, but can you explain why they are doing this now? All indicators seem to suggest the economy is strong, so why are they resorting to tactics we last heard about in 2008?
- baronmunchausen 7y ago
  To cut through all the econ BS, basically because they stopped doing it for a while and markets went down a lot, then short term (overnight) lending rates start to spike higher and they freaked out.
- aaronblohowiak 7y ago
  i don’t agree with your assessment of the indicators. We haven’t hit target inflation, because labor costs have been resisting upward pressure due to underemployment. The fed thinks it can paper over structural problems with cheap money, resulting in capital asset price inflation and increased wealth disparity...furthering barriers to real wage growth.
  - deleted 7y ago
    [deleted]
- coolspot 7y ago
  Some think it is because elections are near. Can’t have weak market before that. Same reason why China trade deal phase 1 was signed, which doesn’t solve problems in trade with China.
  - hcknwscommenter 7y ago
    > Can’t have weak market before that That is only true when the President has an (R) next to his name. (D)-type Presidents do not enjoy this privilege from the Fed.
    - nwsm 7y ago
      I wish someone would post a counterexample along with their downvote.
- mdorazio 7y ago
  Not sure why you think indicators suggest a strong economy - if you dig into most of them, the US isn't actually doing that great after you discount for the artificially easy money situation created by the Fed's actions for the last decade and its knock-on effects (ex. debt-funded stock buybacks).
- alecco 7y ago
  > All indicators seem to suggest the economy is strong It's doing great if you ignore budget deficit, multiple debt balloons (national/municipal/auto/student), and looming trillions of unfunded liabilities. What could possibly go wrong?
- deleted 7y ago
  [deleted]
- mywittyname 7y ago
  Some sectors of the economy are strong, but other sectors are doing extremely poorly. Agriculture and mining have been hit by several recessions (two consecutive quarters of negative growth) over the past four years, while sectors like finance and technology are doing very well. The mining and natural resources sector was hit by a recession in ~2015 that was worse than the 2008 crash. The problem is finance is by far the largest sector of the US economy, so when you look at aggregate GDP numbers, the US economy looks great because the modest gains in finance are more than compensating for the huge reduction in output in the smaller sectors. It's the same story for the stock market: the market cap of the stock market is heavily weighted towards technology stocks, which is compensating for the poor performance in lagging sectors.
- charwalker 7y ago
  Because your analysis is incorrect. The economy is flat, if that, based on stock market information. But most people don't have wealth in stock but a house or car with a 401k waiting. Real income/wages are flat, the many tariffs and economic policy choices made by the current administration has slowed if not stopped manufacturing (steel tariffs especially), the rate of auto loan defaults is at a record high (see 2008 mortgage crisis), and worse. Adding $1 trillion of debt per year is insane and would send 2008-2016 debt hawks into a tizzy yet the current admin vastly increased the deficit over the previous administration. Most of this is tax cuts from the 2017 bill which disproportionately go to corporations and super wealthy. Tax cuts for corporations do not expire whereas those for citizens will sunset. These tax cuts have led to massive stock buybacks which artificially buoy the stock market (which is why it's the only 'good' thing about the economy as a whole right now). The best news of each monthly job report, jobs gained, has been rolled back by later reports allowing the administration to trumpet growth and improvement but leave out how off the numbers really are each cycle. Also, most of the 'new' jobs are part time, low wage, low skill, or gig economy work that often doesn't pay a livable wage or is a supplement to another low paying or part time job. That pattern does not lend itself to a strong, robust economy but can create a short term projection that appears so. We recently hit a known recession indicator where the Treasury yield curve inverted. An inverted yield curve occurs when long-term yields fall below short-term yields like when 1 year bonds have higher interest than 10 year. usually the long term investment has higher returns except when analysts or brokers predict a crash is coming. Since this metric was tracked, we have entered a recession within 24 months every single time the curve has inverted. This includes the negative bond rates we saw after 2008. Today we might be paying too much attention to this indicator for it to still work that way but it's still important. For all intents and purposes, the Trump economy is not good, flat, and falling. We may see a massive correction once stock buybacks end or are banned, corporate taxes are raised by a liberal congress, or any number of policy changes. Manufacturing is set for layoffs and reductions through 2020 (see US Steel closing sites in Michigan) and I'm personally saving for a down payment on a house when the market crashes in my area. I'm curious, what indicators are you going off to think they 'all' suggest the economy is strong? It may be your sources are lying by omission or spinning information to look good when it isn't a real representation of the economy, like pointing to stock market highs that mean almost nothing. We've crossed 26000 in the Dow averages like 5 times in the current admin, that isn't stable at all but a pattern of rise/fall boom/bust that is not sustainable.
blackrock 7y ago
The 2019-nCoV is going to get much worse, before it gets better. Q1 in China is going to be much worse than Q1 last year. Factory output will slow. And this will affect the entire nation’s export engine to the world, and including the US. How do you think this will affect the stock market? It kept going up in a straight line, until the coronavirus outbreak, and then SPY fell 10 points off.
hcknwscommenter 7y ago
The literal definition of QE, AFAIK, is "injecting money supply into the market." What the Fed is doing here is swapping one risk free asset for another. These are very different. There was a hiccup in the repo market, so the Fed is "buying" extremely short term (e.g., O/N repo) instruments. There is no net injection into the market. In contrast, during actual QE, the Fed was buying across the curve so that actually available interest rates for economic actors were depressed (again across the curve), encouraging economic activity. The effect is VERY different. The effect was supercharged with operation twist but that is another story.
- nwah1 7y ago
  QE is also just swapping of assets, which is why it wasn't noticeably inflationary any of the times it was done.
  - fbonetti 7y ago
    It’s swapping an existing asset (a treasury) for an asset that was created completely out of thin air (reserves). It increases the monetary base. If you don’t believe me, look at the Fed’s own data. https://fred.stlouisfed.org/series/BOGMBASE https://fred.stlouisfed.org/series/BOGMBASE QE has not caused excess inflation in terms of the consumer price level, but it has dramatically increased the price of interest-rate sensitive assets like real estate, equities, and bonds.
  - hcknwscommenter 7y ago
    "QE is also just swapping of assets" Sort of. It was a swapping of short term liquidity for assets across the curve. Which is why it was fundamentally different from what the FED is doing today. "which is why it wasn't noticeably inflationary any of the times it was done" This is quite a strong statement. I would disagree. My model says it was inflationary. The counterfactual is "what would the inflation/deflation rate be in the absence of QE all else being the same?". Such counterfactuals are hard to come by, which is why this is such a dismal "science." At any rate, it cannot be denied (IMHO) that actual QE depressed interest rates available to economic actors.
smilbandit 7y ago
so trying to keep things afloat so that it can bust later, say when a new president is elected.
cconroy 7y ago
These policies exacerbate inequality. In fact, I think economic inequality wouldn't be an big issue without this crap.
- anm89 7y ago
  Yeah, I think if the average person understood this there would be riots in the streets. It's an unbelievably huge regressive welfare program for the .01%. Fortunately it's boring and complicated which is a built in guarantee that a large percentage of people will never care about it.
  - derision 7y ago
    As a small retail investor, and someone who's income puts me in the middle class, I've had big gains in my equities. I consider myself an "average person". Why should this make me want to riot in the streets? Is your implication that only the 0.01% actually own stocks? Even my grandmother, albeit managed by a financial advisor, has a stock portfolio that is benefiting from the current market activity.
    - cconroy 7y ago
      Look into Cantillion Effect "...recipients of new money enjoy higher standards of living at the expense of later recipients..."[0] [0] https://en.wikipedia.org/wiki/Richard_Cantillon#Monetary_theory https://en.wikipedia.org/wiki/Richard_Cantillon#Monetary_the...
      - FiatLuxDave 7y ago
        Ah, thank you! That's exactly what I was trying to think of when I posted this question 7 months ago: https://news.ycombinator.com/item?id=20164397 https://news.ycombinator.com/item?id=20164397 +50 internet points for you!
    - abofh 7y ago
      Because it's taking huge amounts of treasuries purchased to simply support the market. You're seeing stability, but your children are seeing a higher debt burden.
aguyfromnb 7y ago
>It's why markets are going up despite zero increase in overall corporate profits and mediocre economic growth. It's one of many reasons the markets might be going up, along with slow global growth around the world (where else should you put your money?) and potential global instability (Hong Kong, Iran, China; USD still a safe haven). >artificial stimulus What is the difference between natural and artificial stimulus? >why the economy shuffles from bubble to bust. You see this particular argument all the time, but one look at the data shows that the boom/bust cycles of modern times are few and far between relative to 30,40,50 years ago, and in particular when compared to the pre Federal Reserve days. Booms and busts happen in every economy, ever, throughout history, with or without central banks.

acdanger 7y ago

Admittedly, I haven't read the article yet, but can you explain why they are doing this now? All indicators seem to suggest the economy is strong, so why are they resorting to tactics we last heard about in 2008?

baronmunchausen 7y ago
To cut through all the econ BS, basically because they stopped doing it for a while and markets went down a lot, then short term (overnight) lending rates start to spike higher and they freaked out.
aaronblohowiak 7y ago
i don’t agree with your assessment of the indicators. We haven’t hit target inflation, because labor costs have been resisting upward pressure due to underemployment. The fed thinks it can paper over structural problems with cheap money, resulting in capital asset price inflation and increased wealth disparity...furthering barriers to real wage growth.
- deleted 7y ago
  [deleted]
coolspot 7y ago
Some think it is because elections are near. Can’t have weak market before that. Same reason why China trade deal phase 1 was signed, which doesn’t solve problems in trade with China.
- hcknwscommenter 7y ago
  > Can’t have weak market before that That is only true when the President has an (R) next to his name. (D)-type Presidents do not enjoy this privilege from the Fed.
  - nwsm 7y ago
    I wish someone would post a counterexample along with their downvote.
mdorazio 7y ago
Not sure why you think indicators suggest a strong economy - if you dig into most of them, the US isn't actually doing that great after you discount for the artificially easy money situation created by the Fed's actions for the last decade and its knock-on effects (ex. debt-funded stock buybacks).
alecco 7y ago
> All indicators seem to suggest the economy is strong It's doing great if you ignore budget deficit, multiple debt balloons (national/municipal/auto/student), and looming trillions of unfunded liabilities. What could possibly go wrong?
deleted 7y ago
[deleted]
mywittyname 7y ago
Some sectors of the economy are strong, but other sectors are doing extremely poorly. Agriculture and mining have been hit by several recessions (two consecutive quarters of negative growth) over the past four years, while sectors like finance and technology are doing very well. The mining and natural resources sector was hit by a recession in ~2015 that was worse than the 2008 crash. The problem is finance is by far the largest sector of the US economy, so when you look at aggregate GDP numbers, the US economy looks great because the modest gains in finance are more than compensating for the huge reduction in output in the smaller sectors. It's the same story for the stock market: the market cap of the stock market is heavily weighted towards technology stocks, which is compensating for the poor performance in lagging sectors.
charwalker 7y ago
Because your analysis is incorrect. The economy is flat, if that, based on stock market information. But most people don't have wealth in stock but a house or car with a 401k waiting. Real income/wages are flat, the many tariffs and economic policy choices made by the current administration has slowed if not stopped manufacturing (steel tariffs especially), the rate of auto loan defaults is at a record high (see 2008 mortgage crisis), and worse. Adding $1 trillion of debt per year is insane and would send 2008-2016 debt hawks into a tizzy yet the current admin vastly increased the deficit over the previous administration. Most of this is tax cuts from the 2017 bill which disproportionately go to corporations and super wealthy. Tax cuts for corporations do not expire whereas those for citizens will sunset. These tax cuts have led to massive stock buybacks which artificially buoy the stock market (which is why it's the only 'good' thing about the economy as a whole right now). The best news of each monthly job report, jobs gained, has been rolled back by later reports allowing the administration to trumpet growth and improvement but leave out how off the numbers really are each cycle. Also, most of the 'new' jobs are part time, low wage, low skill, or gig economy work that often doesn't pay a livable wage or is a supplement to another low paying or part time job. That pattern does not lend itself to a strong, robust economy but can create a short term projection that appears so. We recently hit a known recession indicator where the Treasury yield curve inverted. An inverted yield curve occurs when long-term yields fall below short-term yields like when 1 year bonds have higher interest than 10 year. usually the long term investment has higher returns except when analysts or brokers predict a crash is coming. Since this metric was tracked, we have entered a recession within 24 months every single time the curve has inverted. This includes the negative bond rates we saw after 2008. Today we might be paying too much attention to this indicator for it to still work that way but it's still important. For all intents and purposes, the Trump economy is not good, flat, and falling. We may see a massive correction once stock buybacks end or are banned, corporate taxes are raised by a liberal congress, or any number of policy changes. Manufacturing is set for layoffs and reductions through 2020 (see US Steel closing sites in Michigan) and I'm personally saving for a down payment on a house when the market crashes in my area. I'm curious, what indicators are you going off to think they 'all' suggest the economy is strong? It may be your sources are lying by omission or spinning information to look good when it isn't a real representation of the economy, like pointing to stock market highs that mean almost nothing. We've crossed 26000 in the Dow averages like 5 times in the current admin, that isn't stable at all but a pattern of rise/fall boom/bust that is not sustainable.

blackrock 7y ago

The 2019-nCoV is going to get much worse, before it gets better. Q1 in China is going to be much worse than Q1 last year. Factory output will slow. And this will affect the entire nation’s export engine to the world, and including the US. How do you think this will affect the stock market? It kept going up in a straight line, until the coronavirus outbreak, and then SPY fell 10 points off.

hcknwscommenter 7y ago

The literal definition of QE, AFAIK, is "injecting money supply into the market." What the Fed is doing here is swapping one risk free asset for another. These are very different. There was a hiccup in the repo market, so the Fed is "buying" extremely short term (e.g., O/N repo) instruments. There is no net injection into the market. In contrast, during actual QE, the Fed was buying across the curve so that actually available interest rates for economic actors were depressed (again across the curve), encouraging economic activity. The effect is VERY different. The effect was supercharged with operation twist but that is another story.

nwah1 7y ago
QE is also just swapping of assets, which is why it wasn't noticeably inflationary any of the times it was done.
- fbonetti 7y ago
  It’s swapping an existing asset (a treasury) for an asset that was created completely out of thin air (reserves). It increases the monetary base. If you don’t believe me, look at the Fed’s own data. https://fred.stlouisfed.org/series/BOGMBASE https://fred.stlouisfed.org/series/BOGMBASE QE has not caused excess inflation in terms of the consumer price level, but it has dramatically increased the price of interest-rate sensitive assets like real estate, equities, and bonds.
- hcknwscommenter 7y ago
  "QE is also just swapping of assets" Sort of. It was a swapping of short term liquidity for assets across the curve. Which is why it was fundamentally different from what the FED is doing today. "which is why it wasn't noticeably inflationary any of the times it was done" This is quite a strong statement. I would disagree. My model says it was inflationary. The counterfactual is "what would the inflation/deflation rate be in the absence of QE all else being the same?". Such counterfactuals are hard to come by, which is why this is such a dismal "science." At any rate, it cannot be denied (IMHO) that actual QE depressed interest rates available to economic actors.

smilbandit 7y ago

so trying to keep things afloat so that it can bust later, say when a new president is elected.

cconroy 7y ago

These policies exacerbate inequality. In fact, I think economic inequality wouldn't be an big issue without this crap.

anm89 7y ago
Yeah, I think if the average person understood this there would be riots in the streets. It's an unbelievably huge regressive welfare program for the .01%. Fortunately it's boring and complicated which is a built in guarantee that a large percentage of people will never care about it.
- derision 7y ago
  As a small retail investor, and someone who's income puts me in the middle class, I've had big gains in my equities. I consider myself an "average person". Why should this make me want to riot in the streets? Is your implication that only the 0.01% actually own stocks? Even my grandmother, albeit managed by a financial advisor, has a stock portfolio that is benefiting from the current market activity.
  - cconroy 7y ago
    Look into Cantillion Effect "...recipients of new money enjoy higher standards of living at the expense of later recipients..."[0] [0] https://en.wikipedia.org/wiki/Richard_Cantillon#Monetary_theory https://en.wikipedia.org/wiki/Richard_Cantillon#Monetary_the...
    - FiatLuxDave 7y ago
      Ah, thank you! That's exactly what I was trying to think of when I posted this question 7 months ago: https://news.ycombinator.com/item?id=20164397 https://news.ycombinator.com/item?id=20164397 +50 internet points for you!
  - abofh 7y ago
    Because it's taking huge amounts of treasuries purchased to simply support the market. You're seeing stability, but your children are seeing a higher debt burden.

aguyfromnb 7y ago

>It's why markets are going up despite zero increase in overall corporate profits and mediocre economic growth. It's one of many reasons the markets might be going up, along with slow global growth around the world (where else should you put your money?) and potential global instability (Hong Kong, Iran, China; USD still a safe haven). >artificial stimulus What is the difference between natural and artificial stimulus? >why the economy shuffles from bubble to bust. You see this particular argument all the time, but one look at the data shows that the boom/bust cycles of modern times are few and far between relative to 30,40,50 years ago, and in particular when compared to the pre Federal Reserve days. Booms and busts happen in every economy, ever, throughout history, with or without central banks.