7 ms·

>> They are providing short-term loans If I want to give my friend a loan, I need to earn that money first by working hard. FED does not conduct any profitable

by mamon 7y ago

>> They are providing short-term loans If I want to give my friend a loan, I need to earn that money first by working hard. FED does not conduct any profitable activity that would earn them any money, they DO PRINT that money from thin air.

kylebenzle 7y ago
Why do people keep telling the lie that the FED "does not print money"? As you say, these "loans" are the FED printing $1.5t, no other way to look at it.
- 34679 7y ago
  There is at least one other way to look at it. These loans will primarily, if not exclusively, go to large financial institutions. Due to the wonders of fractional reserve lending, those institutions will get to loan out several multiples of the original $1.5T. Another way to look at it is that they've probably "printed" closer to $15T.
  - kamaal 7y ago
    How does this work? Like any government can just print their way to prosperity? I mean you just magically put $15T into circulation? Won't this lead to inflation?
    - dchyrdvh 7y ago
      As long as other countries use dollars, it's the US that's got 15T worth of goods more. These 15T buy entire tankers of oil, metals, minerals and goods from other countries and this is what matters.
    - 34679 7y ago
      Yes it will absolutely lead to inflation. But for the well connected banks who are first to benefit, and coincidentally, I'm sure, the ones who run the Federal Reserve, the money will get to be spent/loaned before it causes much or any inflation. For the rest of us with value stored as US currency, we get fucked.
    - imtringued 7y ago
      It depends on what it is used for. If banks have enough deposits to lend out $15T they might not find enough borrowers and therefore only a partial sum will reach the economy. Why do banks have so much trouble getting borrowers if the interest rates are negative? Because banks add additional fees on top. The fee must high enough to cover defaulting loans and the bank's expenses. If you have ever taken a loan from a bank you are aware that you must prove to the bank that you are able to repay the sum. Based on the information they receive they will calculate the default risk and increase the interest rate accordingly. Warning. Extremely simplified for ease of demonstration. If you have a 50% default risk then someone else has to cover your missed payments. For every $10k you want to borrow the bank has to ask for another $10k in additional interest to cover the default risk. If your loan lasts 8 years that means $833 additional interest per year or around 8%. Now, if you are a young poor person with a bad credit score then you might end up paying 5% on top of the actual interest rate. Negative interest: 5% - 0.1% = 4.9%. Positive interest: 5% + 1% = 6%. I'm glossing over compounding interest but the picture is clear. Negative interest rates are not going to meaningfully change the cost of borrowing money for the average person unless they get a mortgage that is backed by the value of the house. Meanwhile for rich people and companies who can get rates as low as 1% lowering the interest rate to -0.1% is almost like a cheat code. At those rates the money might as well be free.
- ipnon 7y ago
  The key distinction is that the Fed is trading the new money for high-quality collateral. The original owners of the collateral will return the Fed's money within weeks of months in exchange for the return of the collateral.
  - cryptica 7y ago
    No matter how you look at it, somebody who is not the Fed benefits from this. If market participants didn't think that they will benefit financially from this, they would not participate. This kind of "zero-sum temporary money" theory doesn't add up. The situation is exactly as kylebenzle inferred; the Fed is injecting new fiat money into the economy and it's going straight into the pockets of rich financial institutions which add no value whatsoever to the economy or society.
    - lbotos 7y ago
      > the Fed is injecting new fiat money into the economy and it's going straight into the pockets of rich financial institutions which add no value whatsoever to the economy or society. Financial institutions control who gets levered money (loans). They provide a huge value to an economy and society in a fractional reserve banking system. You are upset about the Fed, when you should be upset about the government who controls fiscal policy. The government can provide tax holidays and other benefits more directly to people, as is their role, not the Fed.
      - cryptica 7y ago
        I don't agree that bank loans add any value to our modern fiat-based economy. It's possible that loans may have added economic value when money was based on a limited resource such as gold, but that economy was an entirely different beast from what we have today. Fiat is not simply a switch that one can flick off and on without anticipating negative flow-on effects; and yet that's exactly how governments have treated it when they abolished the gold standard whilst continuing to support an archaic system of debt and credit. Since the fiat system was introduced, house prices have skyrocketed (relative to average salaries) and corporations have gained monopoly positions in the market whilst using lobyists to take control of our governments. Our fiat-based, debt-oriented system has some obvious drawbacks. Both the government and the Fed are to blame; one for designing the whole scheme and the other for implementing it. I'm upset about the idea that the Fed can inject money into the economy based on obscure criteria. From the perspective of an average citizen, who is legally obliged to accept Fed money in exchange for their labor, whatever set of criteria the Fed chooses is going to be inherently inadequate; the mere lack of transparency behind the Fed's operation is by itself sufficient to discredit the validity of the entire operation. Money backed by gold was good money precisely and fundamentally because everyone understood what gold was and where it came from. Now, essentially nobody knows what fiat money is or where it comes from and yet everyone is legally obliged to accept it.
- kirykl 7y ago
  Essentially its countering threat of massive deflation with some inflation
ipnon 7y ago
If you want to compare apple to oranges, then you would need to be able to print money from thin air in order to be consistent in your metaphor where you are the Federal Reserve and your friend is a cohort of "financial institutions providing high-quality collateral" in exchange. Personal finance and monetary policy are not similar even though they both involve money. Money in your bank account is not the same as money in the Federal Reserve or even money printed at a mint.
- mamon 7y ago
  >> Personal finance and monetary policy are not similar even though they both involve money. That's what central banks want you to believe: that what they are doing is something special, "God's work" - as some drunk Goldman Sachs executive put it. Truth is: law of economics are pretty much like laws of physics - they work the same in small and large scale. It is no coincidence that Great Depression happened in 1929, mere 16 years after FED was created - that was just a first of many consequences of central bank's irresponsible actions.

by mamon 7y ago

kylebenzle 7y ago

Why do people keep telling the lie that the FED "does not print money"? As you say, these "loans" are the FED printing $1.5t, no other way to look at it.

34679 7y ago
There is at least one other way to look at it. These loans will primarily, if not exclusively, go to large financial institutions. Due to the wonders of fractional reserve lending, those institutions will get to loan out several multiples of the original $1.5T. Another way to look at it is that they've probably "printed" closer to $15T.
- kamaal 7y ago
  How does this work? Like any government can just print their way to prosperity? I mean you just magically put $15T into circulation? Won't this lead to inflation?
  - dchyrdvh 7y ago
    As long as other countries use dollars, it's the US that's got 15T worth of goods more. These 15T buy entire tankers of oil, metals, minerals and goods from other countries and this is what matters.
  - 34679 7y ago
    Yes it will absolutely lead to inflation. But for the well connected banks who are first to benefit, and coincidentally, I'm sure, the ones who run the Federal Reserve, the money will get to be spent/loaned before it causes much or any inflation. For the rest of us with value stored as US currency, we get fucked.
  - imtringued 7y ago
    It depends on what it is used for. If banks have enough deposits to lend out $15T they might not find enough borrowers and therefore only a partial sum will reach the economy. Why do banks have so much trouble getting borrowers if the interest rates are negative? Because banks add additional fees on top. The fee must high enough to cover defaulting loans and the bank's expenses. If you have ever taken a loan from a bank you are aware that you must prove to the bank that you are able to repay the sum. Based on the information they receive they will calculate the default risk and increase the interest rate accordingly. Warning. Extremely simplified for ease of demonstration. If you have a 50% default risk then someone else has to cover your missed payments. For every $10k you want to borrow the bank has to ask for another $10k in additional interest to cover the default risk. If your loan lasts 8 years that means $833 additional interest per year or around 8%. Now, if you are a young poor person with a bad credit score then you might end up paying 5% on top of the actual interest rate. Negative interest: 5% - 0.1% = 4.9%. Positive interest: 5% + 1% = 6%. I'm glossing over compounding interest but the picture is clear. Negative interest rates are not going to meaningfully change the cost of borrowing money for the average person unless they get a mortgage that is backed by the value of the house. Meanwhile for rich people and companies who can get rates as low as 1% lowering the interest rate to -0.1% is almost like a cheat code. At those rates the money might as well be free.
ipnon 7y ago
The key distinction is that the Fed is trading the new money for high-quality collateral. The original owners of the collateral will return the Fed's money within weeks of months in exchange for the return of the collateral.
- cryptica 7y ago
  No matter how you look at it, somebody who is not the Fed benefits from this. If market participants didn't think that they will benefit financially from this, they would not participate. This kind of "zero-sum temporary money" theory doesn't add up. The situation is exactly as kylebenzle inferred; the Fed is injecting new fiat money into the economy and it's going straight into the pockets of rich financial institutions which add no value whatsoever to the economy or society.
  - lbotos 7y ago
    > the Fed is injecting new fiat money into the economy and it's going straight into the pockets of rich financial institutions which add no value whatsoever to the economy or society. Financial institutions control who gets levered money (loans). They provide a huge value to an economy and society in a fractional reserve banking system. You are upset about the Fed, when you should be upset about the government who controls fiscal policy. The government can provide tax holidays and other benefits more directly to people, as is their role, not the Fed.
    - cryptica 7y ago
      I don't agree that bank loans add any value to our modern fiat-based economy. It's possible that loans may have added economic value when money was based on a limited resource such as gold, but that economy was an entirely different beast from what we have today. Fiat is not simply a switch that one can flick off and on without anticipating negative flow-on effects; and yet that's exactly how governments have treated it when they abolished the gold standard whilst continuing to support an archaic system of debt and credit. Since the fiat system was introduced, house prices have skyrocketed (relative to average salaries) and corporations have gained monopoly positions in the market whilst using lobyists to take control of our governments. Our fiat-based, debt-oriented system has some obvious drawbacks. Both the government and the Fed are to blame; one for designing the whole scheme and the other for implementing it. I'm upset about the idea that the Fed can inject money into the economy based on obscure criteria. From the perspective of an average citizen, who is legally obliged to accept Fed money in exchange for their labor, whatever set of criteria the Fed chooses is going to be inherently inadequate; the mere lack of transparency behind the Fed's operation is by itself sufficient to discredit the validity of the entire operation. Money backed by gold was good money precisely and fundamentally because everyone understood what gold was and where it came from. Now, essentially nobody knows what fiat money is or where it comes from and yet everyone is legally obliged to accept it.
kirykl 7y ago
Essentially its countering threat of massive deflation with some inflation

ipnon 7y ago

If you want to compare apple to oranges, then you would need to be able to print money from thin air in order to be consistent in your metaphor where you are the Federal Reserve and your friend is a cohort of "financial institutions providing high-quality collateral" in exchange. Personal finance and monetary policy are not similar even though they both involve money. Money in your bank account is not the same as money in the Federal Reserve or even money printed at a mint.

mamon 7y ago
>> Personal finance and monetary policy are not similar even though they both involve money. That's what central banks want you to believe: that what they are doing is something special, "God's work" - as some drunk Goldman Sachs executive put it. Truth is: law of economics are pretty much like laws of physics - they work the same in small and large scale. It is no coincidence that Great Depression happened in 1929, mere 16 years after FED was created - that was just a first of many consequences of central bank's irresponsible actions.