24 ms·

Federal Reserve balance sheet trends

165 points by TekMol 7y ago

LatteLazy 7y ago
Til, People are more than happy to sell their children for a slightly cheaper mortgage as long as you dress it up correctly.
- RobertoG 7y ago
  Who are people selling their children to, and how?
  - Balero 7y ago
    Selling them to whoever is buying the debt. The government gives you money(low taxes)/buys something, and does so by borrowing the money for a long time. Now future generations (their children) are on the hook for the payments, having to pay higher taxes in the future for benefits in the present. This is fine if you are using that money to invest smartly, such as in needed infrastructure. This is not good if you are doing it to lower taxes to win elections. This is how you can "sell you children", though I prefer the more correct language of saddling them with debts.
    - RobertoG 7y ago
      From who is the government borrowing money? For instance, in the current situation, all the countries are applying stimulus at the same time, so, where is all that money coming from?
      - MichaelApproved 7y ago
        They’re printing new money which causes inflation.
  - LatteLazy 7y ago
    I'm being tongue in check with that bit :). We're not literally selling the kids. But it is the kids that will be paying off these huge debts via higher taxes and less services. The debts are mainly owed to China, Japan and a few other nations as well as big private lenders (hedge funds and billionaires)
    - RobertoG 7y ago
      That's not how it works, but even if that was the case, if that debt was owned by the Federal Reserve, who get the interest of that money? and who is the owner of the debt?
      - LatteLazy 7y ago
        If you really want to get into the complexities of who holds US debt and what happens if some of it is cancelled or whether than can happen, that's a huge discussion taking weeks of work and requireing PhDs to answer. I'm just making quips about how much debt has been run up since 2008 and how little the US (or other nations that have followed the same policies) actually has to show for it compared to what it will take to pay it off...
    - mrep 7y ago
      Except the page linked is the FEDs balance sheet of assets they bought with printed money which is predominately used to buy our government's debt so they are actually basically reducing our governments debt assuming they never sell it like japan. Considering they barely sold any assets from QE during the longest expansion in the history of our country, I'm betting we are going to follow japan on this. Relevant link that dforrestwilson posted: https://www.huffpost.com/entry/sovereign-debt-jubilee-japanese-style_b_5953bc5be4b0326c0a8d0cc2 https://www.huffpost.com/entry/sovereign-debt-jubilee-japane...
- jrockway 7y ago
  I think this has always been the way we've paid for infrastructure. I remember reading an article about Japan. They've stopped taking on massive infrastructure projects, because the population isn't growing -- they don't want immigrants and people aren't having kids anymore. Without a future tax base to pay for infrastructure, they can't build it anymore. So things like the Tokyo subway system are "done"; no money will ever be available again to build anything. I think we're beginning to see this in the US. In a few years, you won't be able to live in New Jersey and commute to New York City, or take the train from Boston to Washington D.C. The North River Tunnels will have collapsed, because we can't find any money to repair them. Ultimately, it's a little disingenuous to say this is "selling your children". Yes, if we keep buying stuff, someone will have to pay for it. If society takes on projects that need to be paid for over 100 years, people that aren't born today will be spending some of their taxes on it. But with the right investments, it's almost certainly worth it. We can look back at some of the achievements over the last century and find that they probably grew the economy more than they cost, which makes them good investments when paid for collectively. In 1920, we didn't have an Interstate Highway System, we didn't live in the suburbs and commute to the city, we couldn't fly to the far corners of the world in 16 hours, we didn't have all of humanity's knowledge available in our pockets. There is no reason to believe that 2120 won't be just as good as long as we keep investing.
  - jsdalton 7y ago
    Interesting observation, although it should be noted that in the case of infrastructure, the future generations that are obligated to pay for its construction will also be in a position to reap its benefits.
    - jrockway 7y ago
      True. To some extent, even a good mortgage rate trickles down to one's family. Some kid is going to inherit their parents paid-off house. The problem is that people have more than 1 kid, so most of them don't get that benefit and we keep building new homes, I guess.
      - 7y ago
DSingularity 7y ago
Yikes. The market plunged like this despite the fed buying up trillions?
- rapsey 7y ago
  FED buying trillions was the rebound.
iwangulenko 7y ago
Has anyone any idea what that means to the average joe? How to protect one's purchasing power? If the government can give you free money (1200$ checks), it also has the power to take everything away from you, right?
- cft 7y ago
  Buy Bitcoin
  - Qasaur 7y ago
    This may not be the most popular opinion, but Satoshi Nakamoto invented Bitcoin precisely because he wanted to separate money and state. The main purpose of crypto has always been to be hard money in the age of the internet and institutionalised money printing.
- vkou 7y ago
  The $1200 money isn't free, it is borrowed from future taxpayers. The money the Fed prints doesn't go to Joe Average. It goes to investors who are selling the Fed junk bonds. (They then turn around, and buy stocks with those dollars, which is why the market is soaring.)
  - rapsey 7y ago
    > The $1200 money isn't free, it is borrowed from future taxpayers. That is a pretty outdated view. More like the money supply grew and everyone's money is a bit less worth.
    - RobertoG 7y ago
      >>"[..] everyone's money is a bit less worth. " Only if the economy is at full utilization. The reason for the stimulus is that the economy it's not at full utilization, ergo, there will be not accelerated inflation.
      - 7y ago
narok 7y ago
Have to wonder when will the printing of money translate into uncontrolled inflation..
aswanson 7y ago
So I'm hearing the " the dollar is over, throw everything into gold, fiat money is doomed" in other forums. Can anyone give some conterpoints to that narrative?
- somebodythere 7y ago
  The main counterpoint is that this stimulus would be needed to counter massive demand-side deflation.
  - me_me_me 7y ago
    Well easy fix instead of giving money to the top, give it to the bottom. That will surely drive demand as more money is available to spend. It will boost confidence in local economies further growing demand and supply caps. What we see now it large parts of the stimulus package are devoured by the top level bureaucracy never doing anything but being transferred to Cayman islands as performance bonuses. How about we try the trickle up economy for once?
    - somebodythere 7y ago
      That is what the $1200 check and expanded unemployment insurance was meant to be.
    - adventured 7y ago
      > How about we try the trickle up economy for once? We are. The vast majority of the stimulus so far has gone to benefit the bottom 3/4 of the US economically. Here is some of what's in the $2 trillion recent stimulus: - $268b to extend & expand unemployment benefits. - $293b one time check (which won't be one time) - $377b small business loans & grants; this has been more than doubled since then - $150b aid to state & local governments - $153b boost health related spending - $42b boost to smaller social safety net programs, such as SNAP - $45b boost to disaster assistance - $40b boost to education spending People will attempt to retort that: well, but big corporations have improperly taken some of the small business loans; they'll try to use a rare edge case to attempt to nullify the overwhelming point that in fact most of the stimulus is going to the bottom 3/4, not the top 1%. Further, we'll do more stimulus programs yet around sending direct checks to individuals, which will continue to tilt this scale in the favor of the bottom 3/4. The small business loans, unemployment benefits boosters and individual checks also do not have to be paid back, unlike the big business bailouts (such as with the airlines). Most likely direct checks alone will cost over a trillion dollars before this is over. There is very little capable resistance to doing more in that regard, it will happen.
cm2187 7y ago
aka the only reason the stock market has not collapsed. The economic data, and worse, the economic data forecasts, are horrendous, worse than 2008.
etherwhitelable 7y ago
The federal reserve owns half of all US debt. We are paying interest on interest to our own Fed that serves as the banking systems perpetual bailout fund with the ability to create unlimited amounts of money.
- dforrestwilson 7y ago
  Japan is even more pronounced regarding this. Interesting possibilities stem from it: https://www.huffpost.com/entry/sovereign-debt-jubilee-japanese-style_b_5953bc5be4b0326c0a8d0cc2 https://www.huffpost.com/entry/sovereign-debt-jubilee-japane...
  - samdamsam 7y ago
    Modern monetary theory is long overdue.
    - RobertoG 7y ago
      I hope so, but I suspect that the people that is predicting now hyperinflation and the enslavement of our children, will keep doing so despise all absence of evidence. Unfortunately, economics is a very ideologically charged subject.
      - Qasaur 7y ago
        The harsh modern monetary reality where most Americans live paycheck-to-paycheck and have zero job security or savings is enslavement in all but linguistic accuracy. This has been going on since started inflating our money supply (since when we went off the gold standard in 1971 at least), and the economic degeneration won't stop unless we stop the inflation of our money supply too.
    - roenxi 7y ago
      It is hard to tell if you are supportive or resigned to the eventuality. Just in case it is supportive... MMT relies heavily on the fact that tracing back who is paying for it is so convoluted that its backers can claim nobody is. That isn't true. At any moment there is a fixed pool of real resources that we have to divide up. It is pretty obvious that a lot of those resources should be given to people who will use them to create more real resources in the future. It is also obvious that everybody needs enough of a share to live. A State entity can control the money supply and do strange things with the accounting identities, but in real terms it can only redistribute wealth. The government isn't going to turn to MMT to increase the claim of the makers and innovators to societies bounty; the truly inspired ones tend to be a bit eccentric and tend not to present very well on camera at a press conference. MMT will be a redistribution, by and large, to fast talking and charismatic charlatans or pork barrelling to political consituenties. The political process is not very good at assessing technical risk but excellent at pork barrelling. People will use the word 'fairness' a lot. It is reasonable to say that MMT will do wonders for the accounting identities. GDP through the roof, measured real wages may rise, everyone can be a millionaire, banks will be saved and inflation will be mysteriously low no doubt. The median citizen will also have less actual stuff and a lower real quality of life.
fallingfrog 7y ago
The markets now firmly believe that any real reductions in asset prices are impossible. The fed will always rescue them with bailouts. That’s Just incredibly dangerous and can only lead, in one or two more cycles, to the collapse of the US dollar. That sounds incredible but it we keep on this way I just don’t see any other way this could end.
- AnimalMuppet 7y ago
  I see a 30% drop in the Dow in the last two months. I see a very real reduction in asset prices, here in concrete reality. You could argue that that wasn't a real reduction, that a real reduction would be 50% or some other number. If that is your argument, it looks to me like moving the goalposts.
  - fallingfrog 7y ago
    Right but my point is, as soon as it happened the fed went into a panic and printed trillions of dollars and started buying junk bonds, giving the impression that they will do whatever it takes to make the market not drop. No matter the cost. And the market shot back up even though there are 26 million people who just lost their jobs. But you know, this is still an unfolding story so who knows, maybe all the free loans in the world won’t help. We’ll find out.
    - AnimalMuppet 7y ago
      Or, maybe you're right, and the market would have fallen a lot further (or at least not recovered) if the Fed had done nothing. And, on that one, we won't even find out, because that's not what the Fed did.
      - fallingfrog 7y ago
        And I can see the point too that in the short term in the middle of a crisis, they did what they had to do for the economy to survive. It’s after the crisis is over, and things start recovering, that they are really going to have to make unpopular decisions or reinflate the bubble.
Qasaur 7y ago
I've said it before, and I'll say it again. Central banking is the greatest scam in the history of mankind that cartelises the banking sector, gives them the privilege of access to the printing press, and is the root cause of the boom-and-bust cycle. It has managed to convince people (particularly mainstream economists) that its institution is necessary for "financial stability" but what it really does is absolves banks from any form of financial responsibility as they will always be able to receive a bailout if they act irresponsibly, allowing them to always make a profit regardless of risk. This is not free market capitalism but a system that enriches those closer to the central bank (and who get freshly-printed money first before inflation hits the rest of the economy) and punishes those who are relatively further away like manufacturing workers and salary earners. This is the reason why salaries at SV startups (bankrolled by VCs and soaring stock prices leading to valuable RSUs) are so high, and why wealth inequality has notably increased dramatically since we went off the gold standard in 1971[1]. I believe this topic is among the most important things we need to discuss and is arguably more important than climate change (what else is driving consumerism and throw-away-culture but inflation?), but economists have overcomplicated things and made it inaccessible to the average person when it really is so simple that a five-year old can understand it: printing money enriches the few who have access to the printing press at the expense of the many. End central banking and the economy will be stronger, more resilient, fairer, and will reward those who create real value rather than the well-connected. [1] http://wtfhappenedin1971.com http://wtfhappenedin1971.com
- kyuudou 7y ago
  Yes, for those care about anthropogenic climate change, inflationary debt-backed currencies encourage exponential rates of consumption.
Suncho 7y ago
What matters isn't the size of the Fed's balance sheet or what it contains. The Fed's balance sheet is "invisible" to the private-sector economy. This expansion of their balance sheet is simply a reflection of the stimulus we're doing. When the Fed expands their balance sheet, what they're doing is replacing private-sector assets with liquid cash. Given that the stimulus is appropriate for the economy, this is all fine. It's not anything that future generations have to "pay back." And it's not going to cause a collapse of the dollar. The important thing to keep in mind is that we are intentionally shutting down parts of the economy. But some of those parts include mechanisms (jobs) that we normally rely on to supply spending money to consumers and businesses. Due to the partial shutdown, the economy's productive capacity has taken a hit. But even so, our economy still has the capacity to provide a decent standard of living for everyone. We don't want to compound the crisis by failing to ensure that consumers have sufficient spending power to activate the remaining capacity. It would be scary if the Fed's balance sheet weren't expanding like this right now. http://www.greshm.org/blog/printing-money-cures-the-covid-19-crash/ http://www.greshm.org/blog/printing-money-cures-the-covid-19... http://bit.ly/intro-to-cmt http://bit.ly/intro-to-cmt
- Qasaur 7y ago
  >When the Fed expands their balance sheet, what they're doing is replacing private-sector assets with liquid cash. Given that the stimulus is appropriate for the economy, this is all fine. It's not anything that future generations have to "pay back." And it's not going to cause a collapse of the dollar. This is simply not true. The Fed is buying assets at a premium (otherwise counterparties wouldn't sell the assets to the Fed) and is effectively injecting money into the economy. This is a bailout as the Fed is making a liquid market (that otherwise would not exist) for assets, saving the balance sheets of firms. Future generations pay this back not through taxes but through inflation. Whether or not the U.S. dollar will collapse or not is another topic, but what can be said is that it is not sustainable to continue bailing out irresponsible businesses like banks and others when they do not exercise good business practices like prudence, not being overleveraged, or having a buffer in case of lost revenue. The only way this ends is either a depression the scales of which we've never seen in history before (which would liquidate and clear out bad businesses), or a hyperinflationary collapse of the U.S. dollar whereby more and more money is injected to prop everything up. I'm betting on the latter as the former is too politically inconvenient.
throw1234651234 7y ago
So how does this work? The federal reserve prints more USD and buys stuff with it increasing their balance sheet?
laurus 7y ago
One of the biggest things confusing people about how public finance works is that everyone is focused on the Fed rather than the Treasury. A good aspect of MMT is that it explains how the Treasury spending more than it takes in in taxes means more money is created into the economy than is deleted out of the economy. This is the more important thing to focus on. Some of the MMT professors also do a good job explaining how QE (quantitative easing) doesn't create new net financial assets into the system, it just shifts around assets in accounts at the Fed. All this focus on the Fed seems counterproductive.
- freeMoneySry 7y ago
  This reminds me of how the Romans supposedly didn't know that printing money would create inflation. We know MMT is bad long term policy, but politicians in the short term can create favorable economic conditions for the few.
  - thomashobohm 7y ago
    These things are not known, actually. There are people much smarter than you or me that would disagree with your sentiment that "we know MMT is a bad long term policy."
    - ravenstine 7y ago
      > There are people much smarter than you or me that would disagree with your sentiment that "we know MMT is a bad long term policy." How is anyone supposed to argue against that? You can use that to try and defeat any argument, but it doesn't really demonstrate anything. What people? How do you know they are smarter? Are smart people always correct?
      - cultus 7y ago
        The grandparent made a blanket statement that "we know MMT is a bad long term policy" which the other poster was rightly pointing out is wrong. This is a ridiculous blanket statement, and clearly and obviously false. Such arguments don't deserve detailed rebuttals.
aazaa 7y ago
This will work out fine until it doesn't. At that point, the US will face many "bad or worse" kinds of choices. It will be like the choice we face today: "close the economy or the morgues start overflowing everywhere." Except it will be every day, more or less forever. Inject still more money into the economy or the entire financial system collapses. Whenever this balance sheet chart shows up, MMT boosters descend to explain why the Fed's balance sheet doesn't matter. It's interest we owe ourselves. Nobody in the real economy looks at that balance sheet when making actual financial decisions, they claim. I think that misses the point. The point is that since the last financial crisis, the balance sheet has on net expanded. By a lot. When the current crisis hit, the balance sheet shot up from an already elevated level. To put it another way, consider the size of the balance sheet relative to GDP (~$24 trillion): https://fred.stlouisfed.org/series/GDP https://fred.stlouisfed.org/series/GDP At the current level, the balance sheet is about 25% of GDP. There's every reason to believe the Fed is far from done. It's bailouts as far as the eye can see at the moment. And those bailouts will be monetized by the Fed. We can't possibly pay for them at the current value of the dollar. Ever. To the MMT boosters, what happens when the balance sheet approaches 1x GDP? 2x? 5x? Nobody knows because this experiment has never been tried before. The reserve currency printer is also a net debtor. It runs very high, structural deficits with no end in sight. The currency is completely decoupled from gold, and as recent history shows, possibly industrially-critical commodities like oil. I'd be very curious to hear from the MMT proponents on what signals they's look for that the Fed's balance sheet actually does matter in the real economy. Things that can only be explained by problems stemming from the size of that balance sheet. Problems whose only cure is a massive reduction in that balance sheet. Of course, the balance sheet isn't going anywhere. Nor are deficits. When faced with such situations in the past, the answer has been devaluation. The US did that back in the 70s when it closed the gold window. It will happen again. What the MMT proponents I've seen seem to ignore is what form that devaluation will take given the highly unusual circumstances around which it will be occurring.
- toomuchtodo 7y ago
  The Bank of Japan has well above 100% worth of GDP on their books. Considering their structural demographics and adversity to immigration, do you think they'll ever unwind that? That's every developed country's future. Any meaningful reduction in the Fed's balance sheet is going to be untenable. The Fed will end up picking winners and losers through their actions as a "Deus ex machina" market participant, and due to their lack of any meaningful oversight, I hope they act wisely.
bawana 7y ago
The money the fed injects into the financial system is staying in the financial system. Too many dollars chasing too few equities could result in ‘equity inflation’=stock market bubble. (I am using the word equity as a symbol for any financial instrument) But none of this money ( or maybe just a token fraction of it) is reaching the real world. The purpose of this quantative easing is to prop up values of the warehouses of wealth. We still have massive unemployment but the firms doing the layoffs have stable stock prices . What is really amazing is that we live in a world where Marie Antoinette can flaunt her wealth and at the same time use that as an example of ‘free speech’
bawana 7y ago
We need to separate the accounting of ‘financial flows of money’ (money spent on financial instruments) from money spent on goods and services that are not financial. We need to be able to compare the gross financial product with the gdp. This way we can speak more precisely about inflation that affects the real world of Adam Smith vs the world of imaginary values and wealth.
mcintyre1994 7y ago
With a sample size of 1 based on 2008 you'd probably never expect the total to be back below $5 trillion, in the same way it barely got back below $2 trillion after that first spike. Based just on the graph it's probably more likely to go above $10 trillion than below $5 trillion in the next few years. These numbers are completely ridiculous to think about, how would you interpret this in practice?
- vmception 7y ago
  The way to interpret this is that there is wide latitude in the market tolerance of US dollars. Think of it like share dilution. For example, without corresponding demand, Tesla can issue 20% more shares arbitrarily, and the price of a share will drop 20%, or Tesla can wait for excessive demand and issue 20% more shares and the price of a share will stay the same because the market clamored for them. Maybe the price of Tesla would have gone 20% higher if they didn't issue those additional shares? Or maybe interested buyers were waiting for a moment to purchase many at once without affecting the market. Fiat currencies are in the same place. Forget about the cognitive dissonance where currencies are tied to your national identity and comparisons to private shares therefore cause trepidation. The functionality is similar, we just use different terms. Share dilution = inflation. As long as the relative purchasing power of a dollar, compared only to other currencies, is managed, the Federal Reserve can purchase as much as it wants. When the Federal Reserve purchases things, each transaction creates new dollars. The recipient has dollars that didn't exist prior and are just as fungible, slightly diluting the value of all other dollars (causing inflation). The Federal Reserve is fully capable of selling assets on its balance sheet, for existing dollars. Just options and choices that other market participants don't typically have. The wide latitude in the side of the Fed's balance sheet comes from the weakness of other currencies. Central Banks around the world are doing the same thing, weakening those currencies, simultaneously actual people are selling their currency for US dollars. This increases the strength of the US dollar, and means the Federal Reserve can dilute it to weaken it. The long-standing predilection of the Fed, the President and Congress has been to not have a strong dollar, so you can predict what the Fed will consider doing based on macroeconomic events. As long as all currencies are being massively created, the Federal Reserve can do the same proportionally. The amounts don't matter in that regard. You just want to pay attention to the constraints on what it can buy, and if those constraints are being followed, and if there is enough things for it to buy to accomplish its goals (otherwise massive de-flation is likely, and harmful in our ability to predict our purchasing power or investment decisions)
prirun 7y ago
They can't even label a chart so it isn't misleading. How about they label that axis with T (trillion) instead of M (million). I know, I know, somewhere it probably says "(in millions)" somewhere in the fine print.

165 points by TekMol 7y ago

Til, People are more than happy to sell their children for a slightly cheaper mortgage as long as you dress it up correctly.

RobertoG 7y ago
Who are people selling their children to, and how?
- Balero 7y ago
  Selling them to whoever is buying the debt. The government gives you money(low taxes)/buys something, and does so by borrowing the money for a long time. Now future generations (their children) are on the hook for the payments, having to pay higher taxes in the future for benefits in the present. This is fine if you are using that money to invest smartly, such as in needed infrastructure. This is not good if you are doing it to lower taxes to win elections. This is how you can "sell you children", though I prefer the more correct language of saddling them with debts.
  - RobertoG 7y ago
    From who is the government borrowing money? For instance, in the current situation, all the countries are applying stimulus at the same time, so, where is all that money coming from?
    - MichaelApproved 7y ago
      They’re printing new money which causes inflation.
- LatteLazy 7y ago
  I'm being tongue in check with that bit :). We're not literally selling the kids. But it is the kids that will be paying off these huge debts via higher taxes and less services. The debts are mainly owed to China, Japan and a few other nations as well as big private lenders (hedge funds and billionaires)
  - RobertoG 7y ago
    That's not how it works, but even if that was the case, if that debt was owned by the Federal Reserve, who get the interest of that money? and who is the owner of the debt?
    - LatteLazy 7y ago
      If you really want to get into the complexities of who holds US debt and what happens if some of it is cancelled or whether than can happen, that's a huge discussion taking weeks of work and requireing PhDs to answer. I'm just making quips about how much debt has been run up since 2008 and how little the US (or other nations that have followed the same policies) actually has to show for it compared to what it will take to pay it off...
  - mrep 7y ago
    Except the page linked is the FEDs balance sheet of assets they bought with printed money which is predominately used to buy our government's debt so they are actually basically reducing our governments debt assuming they never sell it like japan. Considering they barely sold any assets from QE during the longest expansion in the history of our country, I'm betting we are going to follow japan on this. Relevant link that dforrestwilson posted: https://www.huffpost.com/entry/sovereign-debt-jubilee-japanese-style_b_5953bc5be4b0326c0a8d0cc2 https://www.huffpost.com/entry/sovereign-debt-jubilee-japane...
jrockway 7y ago
I think this has always been the way we've paid for infrastructure. I remember reading an article about Japan. They've stopped taking on massive infrastructure projects, because the population isn't growing -- they don't want immigrants and people aren't having kids anymore. Without a future tax base to pay for infrastructure, they can't build it anymore. So things like the Tokyo subway system are "done"; no money will ever be available again to build anything. I think we're beginning to see this in the US. In a few years, you won't be able to live in New Jersey and commute to New York City, or take the train from Boston to Washington D.C. The North River Tunnels will have collapsed, because we can't find any money to repair them. Ultimately, it's a little disingenuous to say this is "selling your children". Yes, if we keep buying stuff, someone will have to pay for it. If society takes on projects that need to be paid for over 100 years, people that aren't born today will be spending some of their taxes on it. But with the right investments, it's almost certainly worth it. We can look back at some of the achievements over the last century and find that they probably grew the economy more than they cost, which makes them good investments when paid for collectively. In 1920, we didn't have an Interstate Highway System, we didn't live in the suburbs and commute to the city, we couldn't fly to the far corners of the world in 16 hours, we didn't have all of humanity's knowledge available in our pockets. There is no reason to believe that 2120 won't be just as good as long as we keep investing.
- jsdalton 7y ago
  Interesting observation, although it should be noted that in the case of infrastructure, the future generations that are obligated to pay for its construction will also be in a position to reap its benefits.
  - jrockway 7y ago
    True. To some extent, even a good mortgage rate trickles down to one's family. Some kid is going to inherit their parents paid-off house. The problem is that people have more than 1 kid, so most of them don't get that benefit and we keep building new homes, I guess.
    - 7y ago

DSingularity 7y ago

Yikes. The market plunged like this despite the fed buying up trillions?

rapsey 7y ago
FED buying trillions was the rebound.

iwangulenko 7y ago

Has anyone any idea what that means to the average joe? How to protect one's purchasing power? If the government can give you free money (1200$ checks), it also has the power to take everything away from you, right?

cft 7y ago
Buy Bitcoin
- Qasaur 7y ago
  This may not be the most popular opinion, but Satoshi Nakamoto invented Bitcoin precisely because he wanted to separate money and state. The main purpose of crypto has always been to be hard money in the age of the internet and institutionalised money printing.
vkou 7y ago
The $1200 money isn't free, it is borrowed from future taxpayers. The money the Fed prints doesn't go to Joe Average. It goes to investors who are selling the Fed junk bonds. (They then turn around, and buy stocks with those dollars, which is why the market is soaring.)
- rapsey 7y ago
  > The $1200 money isn't free, it is borrowed from future taxpayers. That is a pretty outdated view. More like the money supply grew and everyone's money is a bit less worth.
  - RobertoG 7y ago
    >>"[..] everyone's money is a bit less worth. " Only if the economy is at full utilization. The reason for the stimulus is that the economy it's not at full utilization, ergo, there will be not accelerated inflation.
    - 7y ago

narok 7y ago

Have to wonder when will the printing of money translate into uncontrolled inflation..

aswanson 7y ago

So I'm hearing the " the dollar is over, throw everything into gold, fiat money is doomed" in other forums. Can anyone give some conterpoints to that narrative?

somebodythere 7y ago
The main counterpoint is that this stimulus would be needed to counter massive demand-side deflation.
- me_me_me 7y ago
  Well easy fix instead of giving money to the top, give it to the bottom. That will surely drive demand as more money is available to spend. It will boost confidence in local economies further growing demand and supply caps. What we see now it large parts of the stimulus package are devoured by the top level bureaucracy never doing anything but being transferred to Cayman islands as performance bonuses. How about we try the trickle up economy for once?
  - somebodythere 7y ago
    That is what the $1200 check and expanded unemployment insurance was meant to be.
  - adventured 7y ago
    > How about we try the trickle up economy for once? We are. The vast majority of the stimulus so far has gone to benefit the bottom 3/4 of the US economically. Here is some of what's in the $2 trillion recent stimulus: - $268b to extend & expand unemployment benefits. - $293b one time check (which won't be one time) - $377b small business loans & grants; this has been more than doubled since then - $150b aid to state & local governments - $153b boost health related spending - $42b boost to smaller social safety net programs, such as SNAP - $45b boost to disaster assistance - $40b boost to education spending People will attempt to retort that: well, but big corporations have improperly taken some of the small business loans; they'll try to use a rare edge case to attempt to nullify the overwhelming point that in fact most of the stimulus is going to the bottom 3/4, not the top 1%. Further, we'll do more stimulus programs yet around sending direct checks to individuals, which will continue to tilt this scale in the favor of the bottom 3/4. The small business loans, unemployment benefits boosters and individual checks also do not have to be paid back, unlike the big business bailouts (such as with the airlines). Most likely direct checks alone will cost over a trillion dollars before this is over. There is very little capable resistance to doing more in that regard, it will happen.

cm2187 7y ago

aka the only reason the stock market has not collapsed. The economic data, and worse, the economic data forecasts, are horrendous, worse than 2008.

etherwhitelable 7y ago

The federal reserve owns half of all US debt. We are paying interest on interest to our own Fed that serves as the banking systems perpetual bailout fund with the ability to create unlimited amounts of money.

dforrestwilson 7y ago
Japan is even more pronounced regarding this. Interesting possibilities stem from it: https://www.huffpost.com/entry/sovereign-debt-jubilee-japanese-style_b_5953bc5be4b0326c0a8d0cc2 https://www.huffpost.com/entry/sovereign-debt-jubilee-japane...
- samdamsam 7y ago
  Modern monetary theory is long overdue.
  - RobertoG 7y ago
    I hope so, but I suspect that the people that is predicting now hyperinflation and the enslavement of our children, will keep doing so despise all absence of evidence. Unfortunately, economics is a very ideologically charged subject.
    - Qasaur 7y ago
      The harsh modern monetary reality where most Americans live paycheck-to-paycheck and have zero job security or savings is enslavement in all but linguistic accuracy. This has been going on since started inflating our money supply (since when we went off the gold standard in 1971 at least), and the economic degeneration won't stop unless we stop the inflation of our money supply too.
  - roenxi 7y ago
    It is hard to tell if you are supportive or resigned to the eventuality. Just in case it is supportive... MMT relies heavily on the fact that tracing back who is paying for it is so convoluted that its backers can claim nobody is. That isn't true. At any moment there is a fixed pool of real resources that we have to divide up. It is pretty obvious that a lot of those resources should be given to people who will use them to create more real resources in the future. It is also obvious that everybody needs enough of a share to live. A State entity can control the money supply and do strange things with the accounting identities, but in real terms it can only redistribute wealth. The government isn't going to turn to MMT to increase the claim of the makers and innovators to societies bounty; the truly inspired ones tend to be a bit eccentric and tend not to present very well on camera at a press conference. MMT will be a redistribution, by and large, to fast talking and charismatic charlatans or pork barrelling to political consituenties. The political process is not very good at assessing technical risk but excellent at pork barrelling. People will use the word 'fairness' a lot. It is reasonable to say that MMT will do wonders for the accounting identities. GDP through the roof, measured real wages may rise, everyone can be a millionaire, banks will be saved and inflation will be mysteriously low no doubt. The median citizen will also have less actual stuff and a lower real quality of life.

fallingfrog 7y ago

The markets now firmly believe that any real reductions in asset prices are impossible. The fed will always rescue them with bailouts. That’s Just incredibly dangerous and can only lead, in one or two more cycles, to the collapse of the US dollar. That sounds incredible but it we keep on this way I just don’t see any other way this could end.

AnimalMuppet 7y ago
I see a 30% drop in the Dow in the last two months. I see a very real reduction in asset prices, here in concrete reality. You could argue that that wasn't a real reduction, that a real reduction would be 50% or some other number. If that is your argument, it looks to me like moving the goalposts.
- fallingfrog 7y ago
  Right but my point is, as soon as it happened the fed went into a panic and printed trillions of dollars and started buying junk bonds, giving the impression that they will do whatever it takes to make the market not drop. No matter the cost. And the market shot back up even though there are 26 million people who just lost their jobs. But you know, this is still an unfolding story so who knows, maybe all the free loans in the world won’t help. We’ll find out.
  - AnimalMuppet 7y ago
    Or, maybe you're right, and the market would have fallen a lot further (or at least not recovered) if the Fed had done nothing. And, on that one, we won't even find out, because that's not what the Fed did.
    - fallingfrog 7y ago
      And I can see the point too that in the short term in the middle of a crisis, they did what they had to do for the economy to survive. It’s after the crisis is over, and things start recovering, that they are really going to have to make unpopular decisions or reinflate the bubble.

Qasaur 7y ago

I've said it before, and I'll say it again. Central banking is the greatest scam in the history of mankind that cartelises the banking sector, gives them the privilege of access to the printing press, and is the root cause of the boom-and-bust cycle. It has managed to convince people (particularly mainstream economists) that its institution is necessary for "financial stability" but what it really does is absolves banks from any form of financial responsibility as they will always be able to receive a bailout if they act irresponsibly, allowing them to always make a profit regardless of risk. This is not free market capitalism but a system that enriches those closer to the central bank (and who get freshly-printed money first before inflation hits the rest of the economy) and punishes those who are relatively further away like manufacturing workers and salary earners. This is the reason why salaries at SV startups (bankrolled by VCs and soaring stock prices leading to valuable RSUs) are so high, and why wealth inequality has notably increased dramatically since we went off the gold standard in 1971[1]. I believe this topic is among the most important things we need to discuss and is arguably more important than climate change (what else is driving consumerism and throw-away-culture but inflation?), but economists have overcomplicated things and made it inaccessible to the average person when it really is so simple that a five-year old can understand it: printing money enriches the few who have access to the printing press at the expense of the many. End central banking and the economy will be stronger, more resilient, fairer, and will reward those who create real value rather than the well-connected. [1] http://wtfhappenedin1971.com http://wtfhappenedin1971.com

kyuudou 7y ago
Yes, for those care about anthropogenic climate change, inflationary debt-backed currencies encourage exponential rates of consumption.

Suncho 7y ago

What matters isn't the size of the Fed's balance sheet or what it contains. The Fed's balance sheet is "invisible" to the private-sector economy. This expansion of their balance sheet is simply a reflection of the stimulus we're doing. When the Fed expands their balance sheet, what they're doing is replacing private-sector assets with liquid cash. Given that the stimulus is appropriate for the economy, this is all fine. It's not anything that future generations have to "pay back." And it's not going to cause a collapse of the dollar. The important thing to keep in mind is that we are intentionally shutting down parts of the economy. But some of those parts include mechanisms (jobs) that we normally rely on to supply spending money to consumers and businesses. Due to the partial shutdown, the economy's productive capacity has taken a hit. But even so, our economy still has the capacity to provide a decent standard of living for everyone. We don't want to compound the crisis by failing to ensure that consumers have sufficient spending power to activate the remaining capacity. It would be scary if the Fed's balance sheet weren't expanding like this right now. http://www.greshm.org/blog/printing-money-cures-the-covid-19-crash/ http://www.greshm.org/blog/printing-money-cures-the-covid-19... http://bit.ly/intro-to-cmt http://bit.ly/intro-to-cmt

Qasaur 7y ago
>When the Fed expands their balance sheet, what they're doing is replacing private-sector assets with liquid cash. Given that the stimulus is appropriate for the economy, this is all fine. It's not anything that future generations have to "pay back." And it's not going to cause a collapse of the dollar. This is simply not true. The Fed is buying assets at a premium (otherwise counterparties wouldn't sell the assets to the Fed) and is effectively injecting money into the economy. This is a bailout as the Fed is making a liquid market (that otherwise would not exist) for assets, saving the balance sheets of firms. Future generations pay this back not through taxes but through inflation. Whether or not the U.S. dollar will collapse or not is another topic, but what can be said is that it is not sustainable to continue bailing out irresponsible businesses like banks and others when they do not exercise good business practices like prudence, not being overleveraged, or having a buffer in case of lost revenue. The only way this ends is either a depression the scales of which we've never seen in history before (which would liquidate and clear out bad businesses), or a hyperinflationary collapse of the U.S. dollar whereby more and more money is injected to prop everything up. I'm betting on the latter as the former is too politically inconvenient.

throw1234651234 7y ago

So how does this work? The federal reserve prints more USD and buys stuff with it increasing their balance sheet?

laurus 7y ago

One of the biggest things confusing people about how public finance works is that everyone is focused on the Fed rather than the Treasury. A good aspect of MMT is that it explains how the Treasury spending more than it takes in in taxes means more money is created into the economy than is deleted out of the economy. This is the more important thing to focus on. Some of the MMT professors also do a good job explaining how QE (quantitative easing) doesn't create new net financial assets into the system, it just shifts around assets in accounts at the Fed. All this focus on the Fed seems counterproductive.

freeMoneySry 7y ago
This reminds me of how the Romans supposedly didn't know that printing money would create inflation. We know MMT is bad long term policy, but politicians in the short term can create favorable economic conditions for the few.
- thomashobohm 7y ago
  These things are not known, actually. There are people much smarter than you or me that would disagree with your sentiment that "we know MMT is a bad long term policy."
  - ravenstine 7y ago
    > There are people much smarter than you or me that would disagree with your sentiment that "we know MMT is a bad long term policy." How is anyone supposed to argue against that? You can use that to try and defeat any argument, but it doesn't really demonstrate anything. What people? How do you know they are smarter? Are smart people always correct?
    - cultus 7y ago
      The grandparent made a blanket statement that "we know MMT is a bad long term policy" which the other poster was rightly pointing out is wrong. This is a ridiculous blanket statement, and clearly and obviously false. Such arguments don't deserve detailed rebuttals.

aazaa 7y ago

This will work out fine until it doesn't. At that point, the US will face many "bad or worse" kinds of choices. It will be like the choice we face today: "close the economy or the morgues start overflowing everywhere." Except it will be every day, more or less forever. Inject still more money into the economy or the entire financial system collapses. Whenever this balance sheet chart shows up, MMT boosters descend to explain why the Fed's balance sheet doesn't matter. It's interest we owe ourselves. Nobody in the real economy looks at that balance sheet when making actual financial decisions, they claim. I think that misses the point. The point is that since the last financial crisis, the balance sheet has on net expanded. By a lot. When the current crisis hit, the balance sheet shot up from an already elevated level. To put it another way, consider the size of the balance sheet relative to GDP (~$24 trillion): https://fred.stlouisfed.org/series/GDP https://fred.stlouisfed.org/series/GDP At the current level, the balance sheet is about 25% of GDP. There's every reason to believe the Fed is far from done. It's bailouts as far as the eye can see at the moment. And those bailouts will be monetized by the Fed. We can't possibly pay for them at the current value of the dollar. Ever. To the MMT boosters, what happens when the balance sheet approaches 1x GDP? 2x? 5x? Nobody knows because this experiment has never been tried before. The reserve currency printer is also a net debtor. It runs very high, structural deficits with no end in sight. The currency is completely decoupled from gold, and as recent history shows, possibly industrially-critical commodities like oil. I'd be very curious to hear from the MMT proponents on what signals they's look for that the Fed's balance sheet actually does matter in the real economy. Things that can only be explained by problems stemming from the size of that balance sheet. Problems whose only cure is a massive reduction in that balance sheet. Of course, the balance sheet isn't going anywhere. Nor are deficits. When faced with such situations in the past, the answer has been devaluation. The US did that back in the 70s when it closed the gold window. It will happen again. What the MMT proponents I've seen seem to ignore is what form that devaluation will take given the highly unusual circumstances around which it will be occurring.

toomuchtodo 7y ago
The Bank of Japan has well above 100% worth of GDP on their books. Considering their structural demographics and adversity to immigration, do you think they'll ever unwind that? That's every developed country's future. Any meaningful reduction in the Fed's balance sheet is going to be untenable. The Fed will end up picking winners and losers through their actions as a "Deus ex machina" market participant, and due to their lack of any meaningful oversight, I hope they act wisely.

bawana 7y ago

The money the fed injects into the financial system is staying in the financial system. Too many dollars chasing too few equities could result in ‘equity inflation’=stock market bubble. (I am using the word equity as a symbol for any financial instrument) But none of this money ( or maybe just a token fraction of it) is reaching the real world. The purpose of this quantative easing is to prop up values of the warehouses of wealth. We still have massive unemployment but the firms doing the layoffs have stable stock prices . What is really amazing is that we live in a world where Marie Antoinette can flaunt her wealth and at the same time use that as an example of ‘free speech’

bawana 7y ago

We need to separate the accounting of ‘financial flows of money’ (money spent on financial instruments) from money spent on goods and services that are not financial. We need to be able to compare the gross financial product with the gdp. This way we can speak more precisely about inflation that affects the real world of Adam Smith vs the world of imaginary values and wealth.

mcintyre1994 7y ago

With a sample size of 1 based on 2008 you'd probably never expect the total to be back below $5 trillion, in the same way it barely got back below $2 trillion after that first spike. Based just on the graph it's probably more likely to go above $10 trillion than below $5 trillion in the next few years. These numbers are completely ridiculous to think about, how would you interpret this in practice?

vmception 7y ago
The way to interpret this is that there is wide latitude in the market tolerance of US dollars. Think of it like share dilution. For example, without corresponding demand, Tesla can issue 20% more shares arbitrarily, and the price of a share will drop 20%, or Tesla can wait for excessive demand and issue 20% more shares and the price of a share will stay the same because the market clamored for them. Maybe the price of Tesla would have gone 20% higher if they didn't issue those additional shares? Or maybe interested buyers were waiting for a moment to purchase many at once without affecting the market. Fiat currencies are in the same place. Forget about the cognitive dissonance where currencies are tied to your national identity and comparisons to private shares therefore cause trepidation. The functionality is similar, we just use different terms. Share dilution = inflation. As long as the relative purchasing power of a dollar, compared only to other currencies, is managed, the Federal Reserve can purchase as much as it wants. When the Federal Reserve purchases things, each transaction creates new dollars. The recipient has dollars that didn't exist prior and are just as fungible, slightly diluting the value of all other dollars (causing inflation). The Federal Reserve is fully capable of selling assets on its balance sheet, for existing dollars. Just options and choices that other market participants don't typically have. The wide latitude in the side of the Fed's balance sheet comes from the weakness of other currencies. Central Banks around the world are doing the same thing, weakening those currencies, simultaneously actual people are selling their currency for US dollars. This increases the strength of the US dollar, and means the Federal Reserve can dilute it to weaken it. The long-standing predilection of the Fed, the President and Congress has been to not have a strong dollar, so you can predict what the Fed will consider doing based on macroeconomic events. As long as all currencies are being massively created, the Federal Reserve can do the same proportionally. The amounts don't matter in that regard. You just want to pay attention to the constraints on what it can buy, and if those constraints are being followed, and if there is enough things for it to buy to accomplish its goals (otherwise massive de-flation is likely, and harmful in our ability to predict our purchasing power or investment decisions)

prirun 7y ago

They can't even label a chart so it isn't misleading. How about they label that axis with T (trillion) instead of M (million). I know, I know, somewhere it probably says "(in millions)" somewhere in the fine print.