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The Fed is at least delaying purchase and interest payments on a significant amount of newly issued (short term) Treasuries against which they allow currency (p

by kurthr 7y ago

The Fed is at least delaying purchase and interest payments on a significant amount of newly issued (short term) Treasuries against which they allow currency (paper or electronic) to be issued. This borders on issuance of fiat currency since their purchase is itself "unbacked" although the trades could eventually be unwound in the market if/when there is enough inflation that their value is negligible. It is what gold bugs call printing money... or a money drop that goes straight to the leveraged banking system which lends out a multiple of the money from the Treasuries now held at the Fed and earns interest on the full levered amount. That has an inflationary effect, but mostly on financial instruments (stocks & corp bonds) since that's what banks usually buy with their new found money... and the Fed hopes that has ripple (wealth) effects on the rest of the broader economy.

coldcode 7y ago
At this point its helping companies buy their own stock by having cheap loans to use instead of cash. It's not really doing much for the economy such as spurring more investment or hiring.
- aguyfromnb 7y ago
  What are the mechanics by which loans and stock buybacks do nothing, while investment and hiring do good things? It's all shifting money around, the results of which benefit different groups. That's not to say that in specific cases dollars couldn't be spent better elsewhere, but there is no "this is better than that" formula. "Investing" when there's nothing to invest in is pointless, and if you hadn't heard, unemployment is near all-time lows; companies are hiring.
  - kurthr 7y ago
    Well, actually the stated point of the Fed's move is to spur inflation and that requires monetary velocity (spending and re-spending). For that stock buybacks are not very effective (relative to other Gov spending), because the money just stays in people's investments and doesn't go anywhere. Also, I think you really want to look at the participation rate rather than the un-employment (which has been steady for a year whatever the Fed is doing).

by kurthr 7y ago

coldcode 7y ago

At this point its helping companies buy their own stock by having cheap loans to use instead of cash. It's not really doing much for the economy such as spurring more investment or hiring.

aguyfromnb 7y ago
What are the mechanics by which loans and stock buybacks do nothing, while investment and hiring do good things? It's all shifting money around, the results of which benefit different groups. That's not to say that in specific cases dollars couldn't be spent better elsewhere, but there is no "this is better than that" formula. "Investing" when there's nothing to invest in is pointless, and if you hadn't heard, unemployment is near all-time lows; companies are hiring.
- kurthr 7y ago
  Well, actually the stated point of the Fed's move is to spur inflation and that requires monetary velocity (spending and re-spending). For that stock buybacks are not very effective (relative to other Gov spending), because the money just stays in people's investments and doesn't go anywhere. Also, I think you really want to look at the participation rate rather than the un-employment (which has been steady for a year whatever the Fed is doing).