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Fed’s Balance Sheet Exceeds $7T for First Time in History
- chroem- 6y agoWhat is the point of a privatised economy, when all these inefficient businesses are still subsidized by the state?
- burrows 6y agoIt's crypto-"State ownership of production".
- nafey 6y agoSo that the profits can be privatised and losses subsidised.
- harryh 6y agoCOVID19 represents an extraordinary circumstance where otherwise perfectly healthy businesses would fail due to revenue, quite literally, dropping to zero due to an external shock. When businesses fail and employees are fired real value is destroyed: working relationships are severed & institutional knowledge lost. It is in all of our interests to do what we can to preserve these businesses until the external shock ends.
- chroem- 6y agoIs it still an external shock if these supposedly healthy and rational businesses took on large amounts of debt to buy their own stock, and are now in trouble because they can't pay their bills?
- harryh 6y agoYes.
- TheSoftwareGuy 6y agoThe coronavirus was not caused by rampant buy backs and borrowing. So yes
- toomuchtodo 6y agoAhh, but the buy backs and borrowing is what put over leveraged businesses into a precarious position where they were extremely vulnerable to economic shock. It didn't have to be a pandemic, it could've been any number of other events that caused a credit and demand shock. Strip the equity, give the assets to someone who can properly manage the business.
- economicslol 6y agoThat's such a bullshit Ayn Rand take. We can barely get a single $1200 payment to people who need it but Corps that have spent billions on buybacks when times were good get Billions in easy money and they layoff their workers anyway? Disgusting.
- tossmeout 6y agoYou'd make your point more effectively using logic and reasoning rather than an emotional outburst. Otherwise, as a genuinely curious reader looking to learn from "both sides," your side comes across as motivated more by emotion than reasonable argument. Which is fine for preaching to the choir… but that's about it.
- economicslol 6y agoBoth sides? Do you make the same argument for hearing from literal Nazis? You just need to weigh the arguments for and against the final solution? I'm not directly calling Libertarians Nazis but the analogy holds, I find very little of value from their point of view. Generally Ayn Rand type libertarians are cash worshiping dragons of the Smaug variety. Their only real contribution to discourse is about the power of markets and I think we can discard them because belief in markets is not unique to them.
- x86_64Ubuntu 6y agoSocial Safety nets are designed for "extraordinary" circumstances too, but those are always on the chopping block.
- aeternum 6y agoIsn't it healthy to frequently re-evaluate which government services should be expanded or contracted?
- x86_64Ubuntu 6y agoThat's not what we see in practice. In practice, we see that any program that is deemed to benefit the "wrong" group is thrown onto the chopping block regardless of need and efficacy.
- number6 6y agoYeah but the beauty in this approach lies is this: While Social Safety will level out the social inequalities in the long run, meaning that someday your wealth runs out and you are on food stamps like everyone else. This system freezes you social status. Management will still earn 100x more while others earn next to nothing. It might also cost more, maybe a lot more, but it stabilizes society. True there might be a shift downwards but this is inevitable; most people will be staying on their social stage or at least the distance will be the same to the guy above and under you. This seems to be very important. Always wondered why some guys are passing you just to stand in front of you at the same traffic light? Same same.
- economicslol 6y agoThey should have had an emergency fund of 6 Months of expenses for emergencies. Maybe they should stop eating so much avocado toast.
- bpodgursky 6y agoBig business: It's not actually good for the economy to have untold trillions in rainy-day payroll costs locked up in bonds or other safe funds. That money is best reinvested into the economy, through wages, growth, or whatever. Apples $200B or whatever cash stockpile wasn't doing useful work in safe bank. Small business: Have you ever actually run a small business, or even known anyone who did? Do you understand how ridiculous it is to tell a local coffeeshop "Oh, just have six months of payroll and rent in a safe"? These business contribute a lot to communities, and telling them "oh, you don't deserve to exist unless you are capable of withstanding once-in-a-lifetime pandemics" is asinine.
- orhmeh09 6y agoYet this is the advice politicians, businesspeople, and landlords dole out to ordinary citizens in the face of not only threats like eviction but just their day-to-day immiseration...
- bpodgursky 6y agoBusinesses optimize to produce goods and services and sell them to the world. People optimize for health, happiness, and personal utility. (1) It's reasonable for us to guide society towards different financial goals for people vs businesses. Business failure is part of life (not that we should try to make it happen). Personal failure is catastrophic. The risk/reward tradeoff is different. (2) You'll notice I'm also not advocating for letting people starve in the streets, if they don't have savings. Help people. Help businesses. We're adults, we can do both.
- harryh 6y agoBusinesses and people are different entities. There is little reason to expect that good advice for one would be good advice for the other.
- billfor 6y agoWhen businesses fail they can declare bankruptcy. The business still exists and the jobs can still exist. They don't necessarily need a handout from the government.
- megaman821 6y agoI don't think anything makes these businesses inefficient, just unlucky that they are disproportionately affected by shelter-in-place orders. Since the state is basically shutting down the business for the good of the populace, it seems more analogous to eminent domain. The government has taken something of value (the ability to have their business open) and should compensate these businesses partially for their losses.
- economicslol 6y agoSo the capitalists that get massively rewarded for taking risks now get bailed out when those risks turned out bad? Sounds like BS to me.
- 205guy 6y agoThis is my view as well. The government (fed and states) hit the big pause button on the economy for public safety. They then help out the people and the corporations get through it with unemployment checks and loans to businesses so that the intangible value (relationships and expertise) is not lost. I generally agree that we should guard against privatizing profit and socializing losses, but I don't think it applies here. The point is to get all businesses and people back to the point they were before.
- mrep 6y agoHow is the fed subsidizing inefficient businesses? If you are referring to their corporate bond purchases, they have bought a mere 1.8 billion dollars worth [0] representing a minuscule 0.025% of their balance sheet and it's not like the corporations get free money from that, they still have to pay off the bonds. They are by far mainly buying our own government's debt through US treasury securities and the mortgages on US citizens houses through Mortgage-backed Securities as stated in the article. You can see their balance sheet right here [1]. [0]: https://www.marketwatch.com/story/feds-balance-sheet-tops-7-trillion-shows-increased-buying-of-corporate-bond-etfs-2020-05-21 https://www.marketwatch.com/story/feds-balance-sheet-tops-7-... [1]: https://www.federalreserve.gov/releases/h41/current/h41.htm#h41tab1 https://www.federalreserve.gov/releases/h41/current/h41.htm#...
- iphone_elegance 6y agoI've done this before in a few video games, hopefully things work better here than when I try it
- Melting_Harps 6y ago> I've done this before in a few video games, hopefully things work better here than when I try it I don't know why I found this so funny, given how prevalent seeing hyper-inflated currencies and countries get destroyed has become in my Lifetime. Its like I saw a 4 year old hitting the print trillions button on a Sim-City like game only to see a Game Over appear right away.
- deleted 6y ago[deleted]
- the_why_of_y 6y agoPrevalent? I've seen Zimbabwe and Venezuela, but maybe I'm too young. Certainly debt deflation is more prevalent in recent history. The US Fed has tripled the MB to fix last decade's financial crisis and inflation went down, not up. https://en.wikipedia.org/wiki/File:MB,_M1_and_M2_aggregates_from_1981_to_2012.png https://en.wikipedia.org/wiki/File:MB,_M1_and_M2_aggregates_...
- Melting_Harps 6y agoYes, prevalent, I do/did fintech and I'm now in my mid 30s. Here is just a number the one's off the top of my head spanning just the 8.5 years I've been doing it or been involved in that space. Libya, Somalia, Tunisia, Egypt, Venezuela, Ukraine, Argentina (several times), Brazil. I vaguely recall the days before the transition of the modern MX peso, because my family had property in Baja as a kid and I still remember seeing the obscene amount of zeros on their currency/prices and how much you'd get for just $50 USD, which to me was a lot of money back then. I remember being able to spend all day at an arcade in a mall or a corner shop for $10 and still be able buy chips and soda inside or a fried rice and an ice cream in the food court while my family got haircuts, massages, manicures, medical treatments or whatever took so long to do. The same with the peseta or lira in comparison to the Deutschmark, which was often used in a certain part of Spain, but I was a child and had no real grasp of economics beyond 'wow, that's a lot of numbers!' I incidentally had the same feeling vicariously when I was in the non Euro zone part of E. Europe and I paid someone with a child in CHF or EUR. Its odd how evocative those short encounters can be. Debt based deflation is merely a short term symptom, often of a reserve currency/SDR currency, but just look at how bad even some Western nations have gotten destroyed from the capital controls and other restrictions into the local economy after the Market and currency collapses as result of increasing the monetary base. Hell, even the Eurozone has its own perverse localized form of it, look at what happened to Greece in 2008--they were debating going back to the Drachma for a while and ultimately issued their own form of script/currency in the interim [1]because EUR became scarcer and austerity kept claiming victims after defaulting on the IMF loans. Or the rest of the PIIGS nations for that matter. Slovenia is another example of what happens to an economy that cannot maintain with the EUR inflationary practices by the ECB and distorts the local economy and market dynamics and abandons previously held practices that made them be able to adequately transition after the fall of Yugoslavia, as opposed to its other satellite nations which in the case of Croatia and Serbia led to war. It's really a matter of how deep you want to look at this, and to be honest, I sometimes wonder if I did some irreversible harm to myself and my psyche by living it and breathing for so long. But the truth is you see the best, and subsequently the worst, of Humanity in those situations and conditions so I have no real regrets as I lived a very rich Life so far as a result. 1: https://www.businessinsider.com/greece-local-currency-networks-2013-1?op=1 https://www.businessinsider.com/greece-local-currency-networ...
- heliodor 6y agoAny <dollar_amount> "first time in history" event is not very interesting news because of inflation.
- wegs 6y agoIt's more the headline than the news. The news is pretty big too. $4.5 -> $7 trillion almost overnight.
- x86_64Ubuntu 6y agoDid you read the article or look at any of the graphs? The amount of money used has nearly doubled in 2020.
- heliodor 6y agoNo, I didn't. I can imagine what it's going to say (covid covid, government action). The headline wreaks of sensationalism (assuming the writers are indeed educated and bother to think through what they're writing). Not looking to encourage such headlines with clicks.
- chickenpotpie 6y agoCalendar shows highest date in history
- ISL 6y agoIt wasn't the year 1298 two months ago.
- baxter001 6y agoThat's not a very interesting observation due to everyone being able to work that out. The point here is the previously assumed additional round of quantitative easing now going to be so hot on the heels of the last in January the US may as well be a command economy.
- cft 6y agoRay Dalio thinks we are approaching the end of Bretton Woods monetary system https://youtu.be/yrxYhv2O3wU https://youtu.be/yrxYhv2O3wU It's likely that this or subsequent rounds of QE with already 0 interest rates will blow some unexpected fuse, but the exact scenario will come as a surprise.
- magicsmoke 6y agoBretton Woods monetary system ended in 1971 when the US dollar ended convertibility to gold and became a fiat currency. Whatever system we have today, Bretton Woods isn't it no matter how historic and conspiratorial the name sounds.
- pmorici 6y agoWhen people talk about the Bretton Woods system they are talking about the dollar dominate system of international trade and finance. It began with the Bretton Woods agreement. The end of gold convertibility was a change to that system not the end of the paradigm.
- magicsmoke 6y agoBy people I'm assuming you're referring to people that have never picked up a history book and are cargo culting the name Bretton Woods. Don't feed an idea that is factually wrong.
- panarky 6y ago> will blow some unexpected fuse It's easy to stoke fear of an ambiguous and nonspecific threat, or contribute to a general feeling of ambient dread. This kind of thinking doesn't help me much. It's a lot harder to work through a rigorous model of how the economy actually works, that's consistent with historical and geographic precedent. That kind of thinking would help me a lot, but I'm not sure where to find it. I've heard people crying wolf about hyperinflation for the 30 years that I can remember, and it keeps not happening. Instead, we have contemporary examples like Japan, which has been at zero interest rates with high levels QE for literally decades, and there's no hint of collapse there. Is this time any different for some reason?
- deleted 6y ago[deleted]
- deleted 6y ago[deleted]
- cletus 6y agoIn the wake of the Great Depression the US government made it illegal to own gold (jewelry notwithstanding). At this time, US$1 was convertible to 1/20th of an ounce of gold. People sold their gold back to the government. In the 1930s the US government had spiraling debt so how did it solve this problem? Simple. It simply made US$1 worth 1/35th of an ounce of gold instead. What this amounted to was a devaluation of US government debt in real terms but not in nominal terms. Post-WWI Germany had to pay war reparations denominated in deutschmarks. About 10 years later Germany got into a situation of hyperinflation. This essentially wiped out any outstanding reparations. So if you wonder what the end result of all this is, it's probably that: an effective devaluation of bonds rather than a sovereign default, which is unlikely in any system where the debt is denominated in the currency you can literally print. Interestingly this would also devalue the US government's entitlement obligations (eg Social Security) too.
- selimthegrim 6y agoHow come you never hear the last bit from the MMT crowd
- bryanlarsen 6y agoIt's a core central thesis of MMT. Government spending should be constrained by the inflation it causes rather than the debt or deficit.
- burrows 6y agoAlternatively, “The government ought debase the currency right up until people start to notice.”
- harryh 6y agoFor the record, inflation is currently negative in the US.
- marcrosoft 6y ago
- marcusestes 6y agoFor all of the pearl clutching about the fear of inflation or the devaluation of bonds, I don't see enough consideration of what happened the last time the money printer went brrr for TARP. CPI stayed relatively stable, the bond market recovered, the money got (mostly) repaid. TARP ended up being a really smart move, even though it would have been better structured if it included a small business / consumer package. It'd be interesting if this crisis taught us that the harmful effects of monetary creation aren't as harmful as we thought. Looks like it's time to see if this Modern Monetary Theory thing might hold water. It's terrifying but also kind of exciting.
- ericns 6y agoAnd all the people that fucked us labor class underlings keep their advantages. They're preferential placements to the best schools, the best jobs, helping their friend's kid get a start. It's wonderful. Really fucking wonderful. I love being stuck, being denied the opportunity of advancement because those that are already there were hoodwinked by another black fucking swan. The rage is barely below the surface. Good fucking luck.
- selecsosi 6y agoI think it's important to note that while there were a very high number of repayments, the purpose of that bailout was to transfer asset risk to the larger taxpayer body. Regardless if the initial payment price was repaid, the risk profile still is sitting somewhere. - You value a car on your sales lot on your books: $10,000 - Real value is probably, $5,500, the spoiler and crappy tint doesn't 2x the value - Your car is currently on fire (act of god) so value is scrap - Buddy who runs a bank (you pay on the side because, o this ins't the first on fire car you tried to sell trash for cash) offers you $9,500, a bargin - You are in - 2 years later, pay off bank buddy (maybe political donation) b/c you are the one of the 9 people who can sell cars - Throw press conference because you saved tax payers 10k + horrible risk if I failed - Bank share holders (Tax payers) own pile of scrap he incentives are mismanaged because the calculated risk of a bank failing is evaluated purely on the chaos induced, not the existing status quo which for joe schmoe is crazy but HFT guy can make bank off of (so sold as all upside if you are smart, but is restricted in apparent but fog like ways). Maybe said bank is actually terrible, but we won't know because they are a rise together, never fall together cartel (malicious or not, fact of reality)