8 ms·

One can dream, but you can imagine if the Fed really wanted to implement UBI, it could probably do something like: - Give everyone in the U.S. a guaranteed loa

One can dream, but you can imagine if the Fed really wanted to implement UBI, it could probably do something like: - Give everyone in the U.S. a guaranteed loan for $2,001, 0% interest, payable at the end of the month - Before you "default", enter in a "negotiation" where the Fed can buy back the security from you for $1, writing off "the losses" - Do it all again the next month Tada! Monetary policy as fiscal policy! If you don't want to write it off immediately, guarantee 0% interest and have the timeline for the loan be 200 years, then write off the debt as nonpayable after death. But seriously, I'm not sure if there's a clear line between monetary policy and fiscal policy anymore.

User23 6y ago
There never really was. It was always a charade. The only real “benefit” of the current system is that seigniorage profits are accrued by primary dealers rather than Treasury.
- espadrine 6y ago
  In the EU at least, monetary policy is a property of the currency (which crosses borders), while fiscal policy is a property of the government (associated with a single administrative country). If the world evolves further into currency consolidation (which seems to be the direction aspired to by many technologists hoping for Internet money), this distinction will grow in relevance.
  - yingw787 6y ago
    I kinda don't think after all this people want to move towards currency consolidation. Isn't the E.U. the only union and non-country to have a singular currency? And isn't that singular monetary policy something that causes a great deal of friction between member states (e.g. Greece and Germany back in '08)? I think if you took another vote among E.U. members to ratify the Maastricht treaty today, you might get a different result. What us technologists might aspire to is pretty different from the ground truth.
    - pmorici 6y ago
      I think the idea is more like something along the lines of Bitcoin or similar digital currency with well known and defined rules about supply that serves as the defacto reserve currency but each country or region still has a local currency. Gives the benefits of a single easy to transact in currency while avoiding the disagreements that arise like in the EU.
    - tathougies 6y ago
      Why do you call the EU a non-country? They clearly share sovereignty with their member states in much the same way the federal government of the United States shares sovereignty with its member states.
      - anotheracct_ 6y ago
        https://en.wikipedia.org/wiki/European_Union https://en.wikipedia.org/wiki/European_Union Go here, ctrl-f "country" and press enter a few times.
    - navaati 6y ago
      > Isn't the E.U. the only union and non-country to have a singular currency? I guess there is also, at least, the good ol' african "Franc CFA"
    - vasco 6y ago
      This friction as you call it, is happening again during the current crisis, again between southern european countries and mostly Netherlands and Germany, specifically on the topic of coronabonds which has been widely debated and made lots of headlines. The way the euro works the main direct benefits go to the largest exporting economies, with the weaker ones pretty much losing out. Then the idea is that this is offset by the stronger economies helping the weaker ones in the form of EU grants but there's always a big push back as these direct funds are seen as handouts while the benefits of the common currency are dismissed. This pressure is seen clearly in demands for harsher and harsher austerity. It doesn't help that some officials from northern economies keep showing how they really feel about the situation, going as far as providing quotes like southern countries "spending all their money on women and wine" and the whole PIIGs designation. It's a tough thing to try and rationalise for someone who largely believes in the EU project but who is originally from one of these southern countries and has felt the direct effects of the whole post-2008 period.
  - User23 6y ago
    I have a pretty good understanding of how the Fed and Treasury work together to implement both fiscal and monetary policy in the USA. Recent events have shown that the MMT claim that we can model them as a single entity has been observably proved beyond all doubt. However, my knowledge of the operational, rather than theoretical, realities of the Eurozone is threadbare at best. In my conceptual model the member states have theoretically given up monetary sovereignty, but in reality it appears that at least some are still able to browbeat the ECB into funding their deficits. I'd love it if someone who has a deep understanding of how monetary and fiscal policy are coordinated in the Eurozone could chime in, but I expect the answer is rather long since every member state has somewhat different circumstances.
    - sschueller 6y ago
      Is the US effectively pushing their dept to other nations? Unlike any other currencies were it would just inflate it appears the rest of the world's central banks keep buying more and more dollars to keep the exchange rates stable enogh against their own. At the enormous amount of money being created I would assume Simbabwe or German like inflation but I don't see it happening. Exchange rates are more or less the same as a year ago.
      - User23 6y ago
        > Is the US effectively pushing their dept to other nations? It's actually the exact opposite of this. Other nations, such as Germany, are hungry to run an export surplus. Since the USA is only willing to buy foreign goods with dollars, this means that Germany must accumulate dollars as a result of its export driven economy. The whole notion that being a net exporter is virtuous and being a net importer is reproachable is obvious nonsense. Everyone can't be a net exporter after all, a counterparty is required. That said I find the notion that a nation could grow its GDP by "exporting" in the form of producing goods and then launching them into space comical, to say the least.
- praxulus 6y ago
  The seigniorage profits are made by the fed, and mostly paid back to the Treasury. Only a tiny portion is paid out in dividends to member banks who are required by law to own non-voting shares of the regional reserve banks.
  - solotronics 6y ago
    the Fed is actually privately owned by a consortium of banks https://www.globalresearch.ca/who-owns-the-federal-reserve/10489 https://www.globalresearch.ca/who-owns-the-federal-reserve/1...
    - SaltyBackendGuy 6y ago
      > The Fed generates profits for its shareholders. (from the article) I wish I had something more articulate to say; this truly boggles my mind how this would benefits the American people. It should benefit us as American's right?
      - solotronics 6y ago
        one could argue that it is a scam but so far it has benefited everyone enough so that they don't notice
        MR4D 6y ago
        > benefited everyone I question that. Go read “The Panic of 1907” and I think you will question it as well.
      - download13 6y ago
        No, it was designed to benefit the kind of people who designed it. Namely, bankers and statesmen.
        linuxftw 6y ago
        Agreed. Also, contrast the judicial system.
eganist 6y ago
Piggybacking on this: What stops the Fed from doing something like this and then subsidizing it with negative rates on traditional notes? Disclaimer: not an economist. This could be a really, really stupid idea, and it would clearly only work with literally the strongest world economies that are capable of charging entities to hold their money for them. But it could work well as a crisis basic income solution when everyone else moves to park their cash.
- nickff 6y ago
  The parent's proposal would cause a great deal of inflation, which would diminish demand for negative-rate notes. If someone wants to print money, they should just print money, not try to cover it up, as that will just prolong and worsen the eventual pain.
  - yingw787 6y ago
    So...if nobody but the Fed or some other govt construct demands these notes...are we good...if the market says so...? I'm not saying this isn't insane, it is, but I don't think it's that much more insane than what's going on. Also for an explanation of QE I like this guy's video: https://vimeo.com/2606496 https://vimeo.com/2606496
  - function_seven 6y ago
    I think that's yingw787's point. That as we get deeper into this crisis, the Fed's actions start to look more and more like "printing money", but with a veneer of fiscal^H^H^H^H^H^H monetary policy. The $2,001 notes at 0% is the absurd extreme of this path. (EDIT: Yeah, I meant monetary)
    - SilasX 6y ago
      Sorry if I’m slow, but, if true, I wish that point had been make explicit. That’s actually a good argument. As it stands now, that comment looks more like yet-another-pro-UBI post with a bizarre fantasy about the Fed breaking the law to make it happen, and I downvoted it on that basis. Edit: And I think you meant "veneer of monetary policy"? The argument would be that it's being framed as monetary policy even though it's substantively a fiscal policy, something the Fed is supposed to stay away from.
MattGaiser 6y ago
If inflation rises, there needs to be a mechanism to have it paid back. All the Fed QE at least theoretically goes back into the bank once markets recover and the assets purchased can be sold to make that so. Who is going to buy individual loans which are never repaid if inflation starts to rise?
- lisper 6y ago
  You've got the causality backwards. It's the writing-off that causes inflation (because now you have all that extra cash out in the economy that never comes back to the Fed in the form of loan repayment), not the other way around.
  - jddj 6y ago
    Only if they continue to buy. As shown in 2018, the fed has the power to massively deflate the currency simply by indicating that they might want to unwind or reduce stimulus.
- yingw787 6y ago
  But the Fed QE from '08 didn't make it back if I understand it correctl...I think we managed to unwound about a quarter or a third (?) of the outstanding debt before this crisis hit and the Fed had to issue new QE all over again. I'm not sure I understand what's stopping the Fed from buying back these loans that it issued? If it can't for some reason, what's stopping Congress or the states from creating "banks" to buy it back? Didn't people say before '08 that inflation was caused by the money supply, and then we did QE, and inflation didn't happen? So now they're saying inflation is tied to velocity, or M1 vs. M2?
  - tenpies 6y ago
    > But the Fed QE from '08 didn't make it back if I understand it correctl...I think we managed to unwound about a quarter or a third (?) of the outstanding debt before this crisis hit and the Fed had to issue new QE all over again. I disagree. We never unwound and all that stimulus did come back, but only in things that people wanted: healthcare, education, real estate, and stock prices. Things that were discretionary like air travel and electronics were stuck and have generally stayed there in nominal dollars. We will see this again. The best lie the Fed ever created was to convince people that you have to see inflation everywhere for it to be real inflation. It would be very hard to achieve the sort of 1930s German inflation, or a Zimbawean scenario. What you'll see is that your food costs 50% of your income and rent is the other 50%. Social programs will either be cut or become ineffective, as more of the government's budget is devoted to servicing debt.
afarrell 6y ago
> - Give everyone in the U.S. a guaranteed loan for $2,001, 0% interest, payable at the end of the month > - Before you "default", enter in a "negotiation" where the Fed can buy back the security from you for $1, writing off "the losses" But still impacting individuals credit scores?
- brewdad 6y ago
  Medical debt that gets written off doesn't impact credit scores. There's no reason that this would need to either.
  - afarrell 6y ago
    Really? TIL. Although I was under the impression it was still massively stressful.
- yingw787 6y ago
  If everyone's in on it...would it impact credit scores? My impression of credit scores is they're a metric for a bank or a financial institution to determine credibility for a loan. If everybody knows you'll default on said debt because it's "meant" to be defaulted on, how would that impact the bank's assessment for whether you need a mortgage?
deleted 6y ago
[deleted]
snarf21 6y ago
Very true and no one should be surprised that the Fed is stepping in as buyer of last resort. It is one of their roles. I'd argue that the more important part of monetary policy is the rate setting and I think that is quite different than fiscal policy. In my opinion, fiscal policy should be employed if we can get a greater percentage of return on GDP than the yield on the treasury note. In this case, the government is getting free money.
- thephyber 6y ago
  > if we can get a greater percentage of return on GDP than the yield on the treasury note. In this case, the government is getting free money. Can you explain this? GDP is the total aggregate of all receipts in the economy. The government typically only gets a percentage of this in revenues.
  - snarf21 6y ago
    There are smarter economists than can probably explain it better than me. Keep in mind that if we spend $500B on notes, the increase on GDP is much larger than on just this new spend. The hope is that we are spending this on projects that are economy enablers that have a compounding effect. Meaning that we just need to recover the say 3% of the $500B over a 10 year period. This spending is best spent on infrastructure and technology. Even if we don't get the full return, keep in mind that most notes get spent on non-GDP increasing projects making break even a good deal. (Sorry, I still don't have the best ways to explain this, I need to find some writing that is clearer.)
slv77 6y ago
The Federal Reserve operates like any other bank with the exception that there is no regulatory limit on how big it’s balance sheet can get relative to the capital invested. In this case the capital comes from the member banks which are required to deposit 1/2 of their investment and make the other half available in case it is called. The banks are guaranteed 8% return on the total amount. The large balance sheet and small reserves means that the Federal Reserve is thinly capitalized relative to other banks. Forgiving or writing off a loan would result in a loss which should result in the member banks taking a loss. To many losses and Congress would need to chip in to cover losses. In practice the Treasury will allow the Fed to take a bit of interest from other investment to offset losses. This doesn’t make congress happy because it is effectively redistribution of taxpayer money outside of Congress. Taken to an extreme the Treasury could direct billions of dollars of taxpayer money through bailouts to connected individuals by paying above market prices for assets. In a pinch the Federal Reserve could also re-value its gold reserves to balance its books and make up for losses. Or it could simply never recognize the losses. For example making a 100 year loan with no interest to the state of Illinois. Crossing some of these lines would quickly (if not already) trigger a collapse in the currency or a Congressional showdown.
- yingw787 6y ago
  Thanks for this clear explanation, I enjoyed reading it! If UBI was to come into effect, and that's a separate discussion, I'd definitely prefer using government debt rather than revaluing the very notion of the U.S. dollar to do so. Much safer.

User23 6y ago

There never really was. It was always a charade. The only real “benefit” of the current system is that seigniorage profits are accrued by primary dealers rather than Treasury.

espadrine 6y ago
In the EU at least, monetary policy is a property of the currency (which crosses borders), while fiscal policy is a property of the government (associated with a single administrative country). If the world evolves further into currency consolidation (which seems to be the direction aspired to by many technologists hoping for Internet money), this distinction will grow in relevance.
- yingw787 6y ago
  I kinda don't think after all this people want to move towards currency consolidation. Isn't the E.U. the only union and non-country to have a singular currency? And isn't that singular monetary policy something that causes a great deal of friction between member states (e.g. Greece and Germany back in '08)? I think if you took another vote among E.U. members to ratify the Maastricht treaty today, you might get a different result. What us technologists might aspire to is pretty different from the ground truth.
  - pmorici 6y ago
    I think the idea is more like something along the lines of Bitcoin or similar digital currency with well known and defined rules about supply that serves as the defacto reserve currency but each country or region still has a local currency. Gives the benefits of a single easy to transact in currency while avoiding the disagreements that arise like in the EU.
  - tathougies 6y ago
    Why do you call the EU a non-country? They clearly share sovereignty with their member states in much the same way the federal government of the United States shares sovereignty with its member states.
    - anotheracct_ 6y ago
      https://en.wikipedia.org/wiki/European_Union https://en.wikipedia.org/wiki/European_Union Go here, ctrl-f "country" and press enter a few times.
  - navaati 6y ago
    > Isn't the E.U. the only union and non-country to have a singular currency? I guess there is also, at least, the good ol' african "Franc CFA"
  - vasco 6y ago
    This friction as you call it, is happening again during the current crisis, again between southern european countries and mostly Netherlands and Germany, specifically on the topic of coronabonds which has been widely debated and made lots of headlines. The way the euro works the main direct benefits go to the largest exporting economies, with the weaker ones pretty much losing out. Then the idea is that this is offset by the stronger economies helping the weaker ones in the form of EU grants but there's always a big push back as these direct funds are seen as handouts while the benefits of the common currency are dismissed. This pressure is seen clearly in demands for harsher and harsher austerity. It doesn't help that some officials from northern economies keep showing how they really feel about the situation, going as far as providing quotes like southern countries "spending all their money on women and wine" and the whole PIIGs designation. It's a tough thing to try and rationalise for someone who largely believes in the EU project but who is originally from one of these southern countries and has felt the direct effects of the whole post-2008 period.
- User23 6y ago
  I have a pretty good understanding of how the Fed and Treasury work together to implement both fiscal and monetary policy in the USA. Recent events have shown that the MMT claim that we can model them as a single entity has been observably proved beyond all doubt. However, my knowledge of the operational, rather than theoretical, realities of the Eurozone is threadbare at best. In my conceptual model the member states have theoretically given up monetary sovereignty, but in reality it appears that at least some are still able to browbeat the ECB into funding their deficits. I'd love it if someone who has a deep understanding of how monetary and fiscal policy are coordinated in the Eurozone could chime in, but I expect the answer is rather long since every member state has somewhat different circumstances.
  - sschueller 6y ago
    Is the US effectively pushing their dept to other nations? Unlike any other currencies were it would just inflate it appears the rest of the world's central banks keep buying more and more dollars to keep the exchange rates stable enogh against their own. At the enormous amount of money being created I would assume Simbabwe or German like inflation but I don't see it happening. Exchange rates are more or less the same as a year ago.
    - User23 6y ago
      > Is the US effectively pushing their dept to other nations? It's actually the exact opposite of this. Other nations, such as Germany, are hungry to run an export surplus. Since the USA is only willing to buy foreign goods with dollars, this means that Germany must accumulate dollars as a result of its export driven economy. The whole notion that being a net exporter is virtuous and being a net importer is reproachable is obvious nonsense. Everyone can't be a net exporter after all, a counterparty is required. That said I find the notion that a nation could grow its GDP by "exporting" in the form of producing goods and then launching them into space comical, to say the least.
praxulus 6y ago
The seigniorage profits are made by the fed, and mostly paid back to the Treasury. Only a tiny portion is paid out in dividends to member banks who are required by law to own non-voting shares of the regional reserve banks.
- solotronics 6y ago
  the Fed is actually privately owned by a consortium of banks https://www.globalresearch.ca/who-owns-the-federal-reserve/10489 https://www.globalresearch.ca/who-owns-the-federal-reserve/1...
  - SaltyBackendGuy 6y ago
    > The Fed generates profits for its shareholders. (from the article) I wish I had something more articulate to say; this truly boggles my mind how this would benefits the American people. It should benefit us as American's right?
    - solotronics 6y ago
      one could argue that it is a scam but so far it has benefited everyone enough so that they don't notice
      - MR4D 6y ago
        > benefited everyone I question that. Go read “The Panic of 1907” and I think you will question it as well.
    - download13 6y ago
      No, it was designed to benefit the kind of people who designed it. Namely, bankers and statesmen.
      - linuxftw 6y ago
        Agreed. Also, contrast the judicial system.

eganist 6y ago

Piggybacking on this: What stops the Fed from doing something like this and then subsidizing it with negative rates on traditional notes? Disclaimer: not an economist. This could be a really, really stupid idea, and it would clearly only work with literally the strongest world economies that are capable of charging entities to hold their money for them. But it could work well as a crisis basic income solution when everyone else moves to park their cash.

nickff 6y ago
The parent's proposal would cause a great deal of inflation, which would diminish demand for negative-rate notes. If someone wants to print money, they should just print money, not try to cover it up, as that will just prolong and worsen the eventual pain.
- yingw787 6y ago
  So...if nobody but the Fed or some other govt construct demands these notes...are we good...if the market says so...? I'm not saying this isn't insane, it is, but I don't think it's that much more insane than what's going on. Also for an explanation of QE I like this guy's video: https://vimeo.com/2606496 https://vimeo.com/2606496
- function_seven 6y ago
  I think that's yingw787's point. That as we get deeper into this crisis, the Fed's actions start to look more and more like "printing money", but with a veneer of fiscal^H^H^H^H^H^H monetary policy. The $2,001 notes at 0% is the absurd extreme of this path. (EDIT: Yeah, I meant monetary)
  - SilasX 6y ago
    Sorry if I’m slow, but, if true, I wish that point had been make explicit. That’s actually a good argument. As it stands now, that comment looks more like yet-another-pro-UBI post with a bizarre fantasy about the Fed breaking the law to make it happen, and I downvoted it on that basis. Edit: And I think you meant "veneer of monetary policy"? The argument would be that it's being framed as monetary policy even though it's substantively a fiscal policy, something the Fed is supposed to stay away from.

MattGaiser 6y ago

If inflation rises, there needs to be a mechanism to have it paid back. All the Fed QE at least theoretically goes back into the bank once markets recover and the assets purchased can be sold to make that so. Who is going to buy individual loans which are never repaid if inflation starts to rise?

lisper 6y ago
You've got the causality backwards. It's the writing-off that causes inflation (because now you have all that extra cash out in the economy that never comes back to the Fed in the form of loan repayment), not the other way around.
- jddj 6y ago
  Only if they continue to buy. As shown in 2018, the fed has the power to massively deflate the currency simply by indicating that they might want to unwind or reduce stimulus.
yingw787 6y ago
But the Fed QE from '08 didn't make it back if I understand it correctl...I think we managed to unwound about a quarter or a third (?) of the outstanding debt before this crisis hit and the Fed had to issue new QE all over again. I'm not sure I understand what's stopping the Fed from buying back these loans that it issued? If it can't for some reason, what's stopping Congress or the states from creating "banks" to buy it back? Didn't people say before '08 that inflation was caused by the money supply, and then we did QE, and inflation didn't happen? So now they're saying inflation is tied to velocity, or M1 vs. M2?
- tenpies 6y ago
  > But the Fed QE from '08 didn't make it back if I understand it correctl...I think we managed to unwound about a quarter or a third (?) of the outstanding debt before this crisis hit and the Fed had to issue new QE all over again. I disagree. We never unwound and all that stimulus did come back, but only in things that people wanted: healthcare, education, real estate, and stock prices. Things that were discretionary like air travel and electronics were stuck and have generally stayed there in nominal dollars. We will see this again. The best lie the Fed ever created was to convince people that you have to see inflation everywhere for it to be real inflation. It would be very hard to achieve the sort of 1930s German inflation, or a Zimbawean scenario. What you'll see is that your food costs 50% of your income and rent is the other 50%. Social programs will either be cut or become ineffective, as more of the government's budget is devoted to servicing debt.

afarrell 6y ago

> - Give everyone in the U.S. a guaranteed loan for $2,001, 0% interest, payable at the end of the month > - Before you "default", enter in a "negotiation" where the Fed can buy back the security from you for $1, writing off "the losses" But still impacting individuals credit scores?

brewdad 6y ago
Medical debt that gets written off doesn't impact credit scores. There's no reason that this would need to either.
- afarrell 6y ago
  Really? TIL. Although I was under the impression it was still massively stressful.
yingw787 6y ago
If everyone's in on it...would it impact credit scores? My impression of credit scores is they're a metric for a bank or a financial institution to determine credibility for a loan. If everybody knows you'll default on said debt because it's "meant" to be defaulted on, how would that impact the bank's assessment for whether you need a mortgage?

deleted 6y ago

[deleted]

snarf21 6y ago

Very true and no one should be surprised that the Fed is stepping in as buyer of last resort. It is one of their roles. I'd argue that the more important part of monetary policy is the rate setting and I think that is quite different than fiscal policy. In my opinion, fiscal policy should be employed if we can get a greater percentage of return on GDP than the yield on the treasury note. In this case, the government is getting free money.

thephyber 6y ago
> if we can get a greater percentage of return on GDP than the yield on the treasury note. In this case, the government is getting free money. Can you explain this? GDP is the total aggregate of all receipts in the economy. The government typically only gets a percentage of this in revenues.
- snarf21 6y ago
  There are smarter economists than can probably explain it better than me. Keep in mind that if we spend $500B on notes, the increase on GDP is much larger than on just this new spend. The hope is that we are spending this on projects that are economy enablers that have a compounding effect. Meaning that we just need to recover the say 3% of the $500B over a 10 year period. This spending is best spent on infrastructure and technology. Even if we don't get the full return, keep in mind that most notes get spent on non-GDP increasing projects making break even a good deal. (Sorry, I still don't have the best ways to explain this, I need to find some writing that is clearer.)

slv77 6y ago

The Federal Reserve operates like any other bank with the exception that there is no regulatory limit on how big it’s balance sheet can get relative to the capital invested. In this case the capital comes from the member banks which are required to deposit 1/2 of their investment and make the other half available in case it is called. The banks are guaranteed 8% return on the total amount. The large balance sheet and small reserves means that the Federal Reserve is thinly capitalized relative to other banks. Forgiving or writing off a loan would result in a loss which should result in the member banks taking a loss. To many losses and Congress would need to chip in to cover losses. In practice the Treasury will allow the Fed to take a bit of interest from other investment to offset losses. This doesn’t make congress happy because it is effectively redistribution of taxpayer money outside of Congress. Taken to an extreme the Treasury could direct billions of dollars of taxpayer money through bailouts to connected individuals by paying above market prices for assets. In a pinch the Federal Reserve could also re-value its gold reserves to balance its books and make up for losses. Or it could simply never recognize the losses. For example making a 100 year loan with no interest to the state of Illinois. Crossing some of these lines would quickly (if not already) trigger a collapse in the currency or a Congressional showdown.

yingw787 6y ago
Thanks for this clear explanation, I enjoyed reading it! If UBI was to come into effect, and that's a separate discussion, I'd definitely prefer using government debt rather than revaluing the very notion of the U.S. dollar to do so. Much safer.