6 ms·

Isn't this how the fed injects money into the government? By printing it and buying government securities?

jasode 6y ago
>By printing it and buying government securities? They also printed money to buy billions $ worth of corporate bonds like General Electric Ford, GM, AT&T, etc: https://www.google.com/search?q=%22federal+reserve%22+buys+corporate+bonds https://www.google.com/search?q=%22federal+reserve%22+buys+c... Example list: https://www.investopedia.com/the-fed-s-corporate-bond-portfolio-5069989 https://www.investopedia.com/the-fed-s-corporate-bond-portfo...
bko 6y ago
Correct. My assertion is that the Fed overshot this by increasing the money supply by ~24% in a single year, causing all asset prices to skyrocket (see link in original post). All the money sloshing around the market is exactly what makes it a bubble. Nearly all assets and industries are considerably higher in valuation despite having a much grimmer outlook with everything that has happened over the last year
- onlyrealcuzzo 6y ago
  It's not a bubble. If there's 25% more money, money is worth 25% less. It's not a bubble when things cost 25% more - it means your pay stayed the same - but the money is worth 25% less. This is great if you own assets and employ people and have "capital gains". It's not so great if you don't own assets and "earn income".
  - semi-extrinsic 6y ago
    Yes and no - unless the cost of food, gas, electricity, housing and clothing also increased by 25%, it's hard to argue the dollar is worth 25% less. Come to think of it - if the things that are predominantly bought by the 1% are devalued by 25% due to stimulus increasing the supply of money, but the things that are bought by everyone are not becoming much more expensive, isn't that empirical proof that trickle down economics doesn't work?
    - 09bjb 6y ago
      Yes and...crucially, assets are 25% more expensive to buy. I.e. if assets are things that are "bought by everyone" and not just by the 1% or .0001%, then the dollar is worth 20% less for that purpose.
    - briefcomment 6y ago
      Good point on your second statement. On your first statement, it's less that the dollar is not losing value, and more that scarce items are gaining value compared to non-scarce things. So your Netflix subscription is staying the same, but the house near the coast has doubled. Inflation is never the same across the board. All it means is that a smaller group of people are laying claim to the scarcest items, and they are crowding out the hopes of an increasing number of people to one day be able to afford those scarce items.
    - onlyrealcuzzo 6y ago
      Most commodities like corn & lumber & gold - are up over 25%. Consumer prices don't change as fast. It will be interesting to see if commodity prices go down, or how much of the increase is passed on to consumers. In the US - 41% of electricity generation is mostly debt-financed - Nuclear and renewables - which is cheaper because of the Fed setting the price of debt. Another 40% is natural gas, which is also getting cheaper because its production is largely financed with debt - which is also set by the Fed. So the price of electricity & housing is largely price fixed by The Fed. I would expect inflation there to stay "stubbornly low" indefinitely.
  - loonster 6y ago
    It also means you pay taxes on wealth that was never created.
    - deleted 6y ago
      [deleted]
- whytaka 6y ago
  Presumably, to decrease the money supply, the mechanism must be the same but in reverse: selling treasuries and private assets back into the market for cash and then eliminating its existence. If the securities don't sell for much more than it was bought, accounting for fractional reserve banking, the money supply increase is effectively permanent. So if we take in the permanence of the increased money supply, can we really say we are still in a bubble if the value of the dollar against securities is simply lower?
- reedjosh 6y ago
  If it's a bubble how do you see it crashing? Would a move from asset prices to inflation of everyday goods do it?
  - dlkmp 6y ago
    Increasing interest rates. I don't know enough to estimate the likelihood of that happening but it seems like the obvious danger.
    - pirate787 6y ago
      Higher rates are the solution, not the danger. The danger is the economic waste from artificially lowering rates, causing bubbles and massive misallocation of resources.
  - bko 6y ago
    That's a tough question to answer. I think it will come down to consumer prices but there are a lot of other things that can skew that. For instance, businesses don't want to raise prices so sometimes they'll cut corners to reduce costs. You've seen this in chocolate bars where the typical bar shrinks over the year and then eventually introduce king size to allow for some price inflation. Measuring cpi is also incredibly complicated. I was shocked it's been so low forever considering over 50% of the index is housing, healthcare and education, three products for which we've seen high price growth for decades. So the official number may be "managed" especially considering that trillions in pensions and social security cost depends on it's reporting. But the money supply grew so fast, i don't think any massaging of the data will be able to hide it indefinitely There's no political will for things like higher interest rates or reduced spending, among either political party. The new generation has never seen mortgage rates in double digits I see future price controls and other draconian measures to try to deal with the fallout. Example is gas lines in 1970s. It'll eventually hurt the real economy as artificial scarcity from price controls hurts business. Only thing is somewhat certain about is something will happen. This seems insane that a unit of account can just grow 25% in one year with no signs of stopping with no consequences
    - 6y ago
RobertoG 6y ago
The fed just credit the account of the government. The securities buying part is just a legal requirement.
jerry1979 6y ago
The Fed also bought (continues to buy?) private bonds, which keeps the cost of money low for big players. https://www.cnbc.com/2020/12/16/fed-decision-december-2020-fed-commits-to-keep-buying-bonds-until-the-economy-gets-back-to-full-employment.html https://www.cnbc.com/2020/12/16/fed-decision-december-2020-f...

>By printing it and buying government securities? They also printed money to buy billions $ worth of corporate bonds like General Electric Ford, GM, AT&T, etc: https://www.google.com/search?q=%22federal+reserve%22+buys+corporate+bonds https://www.google.com/search?q=%22federal+reserve%22+buys+c... Example list: https://www.investopedia.com/the-fed-s-corporate-bond-portfolio-5069989 https://www.investopedia.com/the-fed-s-corporate-bond-portfo...

bko 6y ago

Correct. My assertion is that the Fed overshot this by increasing the money supply by ~24% in a single year, causing all asset prices to skyrocket (see link in original post). All the money sloshing around the market is exactly what makes it a bubble. Nearly all assets and industries are considerably higher in valuation despite having a much grimmer outlook with everything that has happened over the last year

onlyrealcuzzo 6y ago
It's not a bubble. If there's 25% more money, money is worth 25% less. It's not a bubble when things cost 25% more - it means your pay stayed the same - but the money is worth 25% less. This is great if you own assets and employ people and have "capital gains". It's not so great if you don't own assets and "earn income".
- semi-extrinsic 6y ago
  Yes and no - unless the cost of food, gas, electricity, housing and clothing also increased by 25%, it's hard to argue the dollar is worth 25% less. Come to think of it - if the things that are predominantly bought by the 1% are devalued by 25% due to stimulus increasing the supply of money, but the things that are bought by everyone are not becoming much more expensive, isn't that empirical proof that trickle down economics doesn't work?
  - 09bjb 6y ago
    Yes and...crucially, assets are 25% more expensive to buy. I.e. if assets are things that are "bought by everyone" and not just by the 1% or .0001%, then the dollar is worth 20% less for that purpose.
  - briefcomment 6y ago
    Good point on your second statement. On your first statement, it's less that the dollar is not losing value, and more that scarce items are gaining value compared to non-scarce things. So your Netflix subscription is staying the same, but the house near the coast has doubled. Inflation is never the same across the board. All it means is that a smaller group of people are laying claim to the scarcest items, and they are crowding out the hopes of an increasing number of people to one day be able to afford those scarce items.
  - onlyrealcuzzo 6y ago
    Most commodities like corn & lumber & gold - are up over 25%. Consumer prices don't change as fast. It will be interesting to see if commodity prices go down, or how much of the increase is passed on to consumers. In the US - 41% of electricity generation is mostly debt-financed - Nuclear and renewables - which is cheaper because of the Fed setting the price of debt. Another 40% is natural gas, which is also getting cheaper because its production is largely financed with debt - which is also set by the Fed. So the price of electricity & housing is largely price fixed by The Fed. I would expect inflation there to stay "stubbornly low" indefinitely.
- loonster 6y ago
  It also means you pay taxes on wealth that was never created.
  - deleted 6y ago
    [deleted]
whytaka 6y ago
Presumably, to decrease the money supply, the mechanism must be the same but in reverse: selling treasuries and private assets back into the market for cash and then eliminating its existence. If the securities don't sell for much more than it was bought, accounting for fractional reserve banking, the money supply increase is effectively permanent. So if we take in the permanence of the increased money supply, can we really say we are still in a bubble if the value of the dollar against securities is simply lower?
reedjosh 6y ago
If it's a bubble how do you see it crashing? Would a move from asset prices to inflation of everyday goods do it?
- dlkmp 6y ago
  Increasing interest rates. I don't know enough to estimate the likelihood of that happening but it seems like the obvious danger.
  - pirate787 6y ago
    Higher rates are the solution, not the danger. The danger is the economic waste from artificially lowering rates, causing bubbles and massive misallocation of resources.
- bko 6y ago
  That's a tough question to answer. I think it will come down to consumer prices but there are a lot of other things that can skew that. For instance, businesses don't want to raise prices so sometimes they'll cut corners to reduce costs. You've seen this in chocolate bars where the typical bar shrinks over the year and then eventually introduce king size to allow for some price inflation. Measuring cpi is also incredibly complicated. I was shocked it's been so low forever considering over 50% of the index is housing, healthcare and education, three products for which we've seen high price growth for decades. So the official number may be "managed" especially considering that trillions in pensions and social security cost depends on it's reporting. But the money supply grew so fast, i don't think any massaging of the data will be able to hide it indefinitely There's no political will for things like higher interest rates or reduced spending, among either political party. The new generation has never seen mortgage rates in double digits I see future price controls and other draconian measures to try to deal with the fallout. Example is gas lines in 1970s. It'll eventually hurt the real economy as artificial scarcity from price controls hurts business. Only thing is somewhat certain about is something will happen. This seems insane that a unit of account can just grow 25% in one year with no signs of stopping with no consequences
  - 6y ago

RobertoG 6y ago

The fed just credit the account of the government. The securities buying part is just a legal requirement.

jerry1979 6y ago

The Fed also bought (continues to buy?) private bonds, which keeps the cost of money low for big players. https://www.cnbc.com/2020/12/16/fed-decision-december-2020-fed-commits-to-keep-buying-bonds-until-the-economy-gets-back-to-full-employment.html https://www.cnbc.com/2020/12/16/fed-decision-december-2020-f...