3 ms·
Not an accurate headline. Here's what actually has happened: * The Fed has doubled (!) the number of assets on its balance sheet by creating new monetary instr
by cs702 6y ago
Not an accurate headline. Here's what actually has happened:
* The Fed has doubled (!) the number of assets on its balance sheet by creating new monetary instruments and using a big swath of them to purchase financial assets like treasuries and mortgage backed bonds, helping maintain price stability in those and other financial assets. In fact, the Fed has created more new monetary assets during the past five-plus months than in the entirety of 2008-2009, during the worst of the global financial crisis. Source: https://fred.stlouisfed.org/series/WALCL https://fred.stlouisfed.org/series/WALCL
* The US Treasury, which must borrow funds or collect taxes in order to spend any money, has increased its spending massively during the pandemic, after the passing of significant tax cuts, so it has been incurring federal deficits as a percent of GDP at the fastest rate since WWII. Source: https://fred.stlouisfed.org/series/GFDEGDQ188S https://fred.stlouisfed.org/series/GFDEGDQ188S
* Tax collections have started to drop, as many sectors of the economy (restaurants, retail stores, malls, office buildings, hotels, travel companies, etc.) are now no longer profitable and have fired or furloughed millions of people. Source: https://fred.stlouisfed.org/series/W006RC1Q027SBEA https://fred.stlouisfed.org/series/W006RC1Q027SBEA (data available only as of Q2)
- Qasaur 6y ago>The Fed has doubled (!) the number of assets on its balance sheet by creating new monetary instruments and using some of them to purchase financial assets like treasuries and mortgage backed bonds. In fact, the Fed has created more new monetary assets during the past five months than in 2008-2009, during the worst of the global financial crisis. This is printing money and it is not inaccurate to say that they have created U.S. Dollars out of thin air to finance their asset-purchases and "lending" (a debt that will never be paid off) to the U.S. government.
- skybrian 6y agoWhen the US Treasury sells treasuries and the Fed buys them, the result is that they don’t have to be repaid. (If held to maturity, the money goes to the Fed, and the Fed’s profits go to the government.) The Fed bought about 2 trillion in treasuries since the beginning of the year and this could be thought of as printing money, if it isn’t undone.
- cs702 6y agoWell... not really: * The Fed buys treasury notes and bonds from third parties, because it cannot buy them directly from the US Treasury at issuance. * The Fed can earn and book profits from treasury securities only to the extent the US Treasury continues to make interest payments and repay principal. * The US Treasury can pay continue to pay interest and repay principal only with money that is (a) borrowed from third parties by issuing new treasury securities, or (b) collected via taxation. Things are this way by design, for many reasons, including the explicit goal of limiting short-term political influence over monetary policy.
- skybrian 6y agoI don’t see those details changing the essentials. * An investor acting as middleman between the Treasury selling a bond and the Fed buying it hardly matters. The Fed is supporting the price and ends up with the bond. * Whether or not an interest payment is made to the Fed, this is money that the government has in the end. The point is that nobody outside the government gets any payments, so the debt is effectively neutralized. I’m not sure the third point is true. Revenue from the Fed’s operations aren’t restricted funds, are they? It may add a lag, though. It’s true that this maintains the independence of the Fed, but currently the Fed is openly advocating that Congress should spend more. They can cooperate to create and spend money when they agree that it’s a good thing. They might not say explicitly say that this is what they’re doing, though.