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No we did not print 40% of all money last year, QE is not printing money, its an asset swap. This money did not go into anyone's pockets. The Rich did not get a

No we did not print 40% of all money last year, QE is not printing money, its an asset swap. This money did not go into anyone's pockets. The Rich did not get a a lot richer compared to everyone else the bottom quartile of earners actually see their wages increasing the fastest of anyone right now. Saving are up, demand is high, Things are good! https://twitter.com/rortybomb/status/1448767207899545609?s=20 https://twitter.com/rortybomb/status/1448767207899545609?s=2...

titzer 5y ago
This is straight from Investopedia: > To execute quantitative easing, central banks increase the supply of money by buying government bonds and other securities. Increasing the supply of money lowers interest rates. When interest rates are lower, banks can lend with easier terms. Quantitive easing is typically implemented when interest rates are already near zero, because, at this point, central banks have fewer tools to influence economic growth. Ok, the Fed doesn't "print" money, the mechanism is more convoluted than that. But it absolutely does inject money into the system, which is ultimately backed by "reserves" which are created out of nothing.
- mdavidn 5y ago
  Well, strictly speaking, the money is backed by the promise to repay the bond with interest. At that point in the future, the money will disappear from existence.
  - nly 5y ago
    The bonds in question are Treasuries, so when the money is repaid it is repaid by the Treasury. Every one of these bonds represents future borrowing (if rolling over the debt) or future tax revenue. It's the secondary effects of buying these bonds that is stimulative. Lower treasury yields means investors seek higher yields elsewhere (e.g. in stocks, corporate bonds etc etc.). They buy those, driving up prices, which in turn drives down yields there too. In any case, bond yields have been falling for decades, so if anything the GFC and COVID have just nudged things along. People are now questioning whether it's even worth owning investment grade bonds. People who want a hedge against the stock market are beginning to look at other asset classes. The wealthy are moving in to increasingly exotic and diversified asset classes. Things like forestry, commodities, private equity etc are now becoming accessible to the moderately well off and not just the super wealthy. Money managers are pushing ever more speculative investments to retail (crypto, ARK funds etc)
    - neilwilson 5y ago
      Ever dollar in existence represents future tax revenue. It quite literally wouldn't be there otherwise. And spending that dollar causes the tax revenue to arise, which means all dollars and all bonds are the source of their own funding. It's basic monetary maths. https://new-wayland.com/blog/why-tax-matches-spending/ https://new-wayland.com/blog/why-tax-matches-spending/
      - nly 5y ago
        This math just showing that total State/Government nominal spend must equal the total take through taxation, which is obviously correct and fine. However, currency is a medium of exchange that facilitates trade in place of barter. It's the oil in the engine, not the fuel. It's important to remember that transactions aren't just abstract financial events, they involve the exchange of time (labour) for some good or service. If you assume that all transactions in the economy ultimately deliver some fractional quantity of 'real wealth' (production of new goods and services, entertainment, knowledge, infrastructure etc), at some rate, then a similar geometric progression can be calculated for that. The thing is that a lot of that wealth creation depends on things that don't scale with the money supply. Simply put, no matter how many trillions of $'s you create there's only one Apple to buy with them. Tax on the other hand scales perfectly since it's just another economic lever. Low rates/yields are still a wealth inequality problem because bank deposits and, to a lesser extent, public equities are ways average people have been able to reallocate some of their idle funds to capture some of that value. Right now it seems an excessive amount of money is flowing to the few with the big ideas, good or bad, in desperation to spur further growth and there's lots of discussion about the 'everything bubble' because most assets are inflated.
        neilwilson 5y ago
        Trade has never had anything to do with barter. It’s always promises “Here’s a chicken, owe me one” Until you get that clear, you’ll not realise that the monetary circuit and the real circuit are only inductively connected. Money is the charger. Production is the toothbrush
    - 5y ago
- imtringued 5y ago
  > But it absolutely does inject money into the system, which is ultimately backed by "reserves" which are created out of nothing. Well, here is the kicker. The system is not the real economy, just a mechanism that lets banks borrow from each other to maintain sufficient reserves. If you want to inject money into the real economy you need to actually borrow money and do fiscal stimulus. If the government does the obvious and borrows for investments like education or infrastructure then the government not only has a liability (the debt) but also an asset (the infrastructure). If the government cuts taxes instead then it not only fails to create an asset equal to the debt it also diminishes the value of their most important asset. The ability to charge taxes. Practically speaking there are two problems here. First, the economy has to have room for government spending and second the money actually has to be spent in a way that benefits the economy. If neither are true you get inflation. I'd say the stimulus checks didn't really benefit the economy. The spending spree that so many people expected didn't happen. The unemployment benefits had the advantage that they are primarily given to people who have no income. I'm sure they contributed to inflation but the supply chains don't look great either. The explosion in energy prices cannot be explained by fiscal stimulus alone.
adam_arthur 5y ago
Yes, of course. An asset swap of newly printed cash for bonds. No offense, but sounds like you don't really understand how the Federal reserve operates. And re: your link. Talking about wage growth in nominal terms is meaningless. Wage growth has lagged inflation all this year, aside from last month. But rents are up ~15% nationally YoY, while wages only up a few percent. This rent growth has not materialized in the CPI yet, that's coming down the pipeline. So feel free to celebrate a nominally higher number while the poor get poorer. Personally, I'd rather advocate against inflationary policies that harm the poor the most. Unfortunately people who are ignorant of finance cheer on policies due to nominal increases, while the wealth gap grows ever wider.
- imtringued 5y ago
  "An asset swap of newly printed cash for bonds." What the hell is printed cash? QE just means banks get bank reserves which a have become a claim against the treasury bonds. Whether you own the bonds directly or indirectly via central bank reserves doesn't matter at all. Imagine the fed issues a new currency called the treasury dollars. All you can do with treasury dollars is buy treasury bonds from the fed. That's what QE does except with bank reserves which can also be used to lend out money to businesses and consumers. Really, QE is a nothing burger. It doesn't make consumers, businesses or governments more likely to borrow. It should be stopped because it is completely ineffective. All it really does is tighten the treasury bond market which means technical buyers (money market, insurance and pension funds) who really need the bonds will bid for increasingly lower yields on the bonds. You know that is a huge surprise, the idea behind QE was that people start selling their government bonds and buy higher yielding bonds from corporations. That didn't happen as much as the Fed wanted.
  - sokoloff 5y ago
    Lower risk-free rates lower mortgage rates which would increase mortgage affordability and amounts borrowed. That makes me, an existing home “owner” more likely to refinance, possibly with cash-out and makes many new borrowers willing/able to borrow more money than if the risk-free rate was 5% higher. I think QE does increase borrowing; it’s not clear to me that it does it for a net good.
kennethh 5y ago
The paper from Bank of England is the best explanation I have read about how money is created. https://www.bankofengland.co.uk/quarterly- https://www.bankofengland.co.uk/quarterly- bulletin/2014/q1/money-creation-in-the-modern-economy As someone else said earlier in the thread most of the money created is by commercial banks when someone take out a loan.
- bserge 5y ago
  Can I get a few million to be repaid in the next 200 years? Could really use that loan.
  - actually_a_dog 5y ago
    Only 200 years? Think bigger. In 2014, the UK paid back a debt that was originally issued in 1720, and that's not even the oldest government debt out there. https://historyofyesterday.com/the-oldest-debts-in-history-2aec42cdb207 https://historyofyesterday.com/the-oldest-debts-in-history-2...
  - imtringued 5y ago
    Well... Austria issued 100 year bonds. I'm sure you could get investors on board by issuing bonds. I don't think a bank is going to accept that offer.
  - neilwilson 5y ago
    It's never repaid, only refinanced. To repay the loan at country level, those holding the equal and opposite savings have to spend the money to create the tax flow that pays off the loan. Since people tend to want to save over time, that doesn't happen.

titzer 5y ago

This is straight from Investopedia: > To execute quantitative easing, central banks increase the supply of money by buying government bonds and other securities. Increasing the supply of money lowers interest rates. When interest rates are lower, banks can lend with easier terms. Quantitive easing is typically implemented when interest rates are already near zero, because, at this point, central banks have fewer tools to influence economic growth. Ok, the Fed doesn't "print" money, the mechanism is more convoluted than that. But it absolutely does inject money into the system, which is ultimately backed by "reserves" which are created out of nothing.

mdavidn 5y ago
Well, strictly speaking, the money is backed by the promise to repay the bond with interest. At that point in the future, the money will disappear from existence.
- nly 5y ago
  The bonds in question are Treasuries, so when the money is repaid it is repaid by the Treasury. Every one of these bonds represents future borrowing (if rolling over the debt) or future tax revenue. It's the secondary effects of buying these bonds that is stimulative. Lower treasury yields means investors seek higher yields elsewhere (e.g. in stocks, corporate bonds etc etc.). They buy those, driving up prices, which in turn drives down yields there too. In any case, bond yields have been falling for decades, so if anything the GFC and COVID have just nudged things along. People are now questioning whether it's even worth owning investment grade bonds. People who want a hedge against the stock market are beginning to look at other asset classes. The wealthy are moving in to increasingly exotic and diversified asset classes. Things like forestry, commodities, private equity etc are now becoming accessible to the moderately well off and not just the super wealthy. Money managers are pushing ever more speculative investments to retail (crypto, ARK funds etc)
  - neilwilson 5y ago
    Ever dollar in existence represents future tax revenue. It quite literally wouldn't be there otherwise. And spending that dollar causes the tax revenue to arise, which means all dollars and all bonds are the source of their own funding. It's basic monetary maths. https://new-wayland.com/blog/why-tax-matches-spending/ https://new-wayland.com/blog/why-tax-matches-spending/
    - nly 5y ago
      This math just showing that total State/Government nominal spend must equal the total take through taxation, which is obviously correct and fine. However, currency is a medium of exchange that facilitates trade in place of barter. It's the oil in the engine, not the fuel. It's important to remember that transactions aren't just abstract financial events, they involve the exchange of time (labour) for some good or service. If you assume that all transactions in the economy ultimately deliver some fractional quantity of 'real wealth' (production of new goods and services, entertainment, knowledge, infrastructure etc), at some rate, then a similar geometric progression can be calculated for that. The thing is that a lot of that wealth creation depends on things that don't scale with the money supply. Simply put, no matter how many trillions of $'s you create there's only one Apple to buy with them. Tax on the other hand scales perfectly since it's just another economic lever. Low rates/yields are still a wealth inequality problem because bank deposits and, to a lesser extent, public equities are ways average people have been able to reallocate some of their idle funds to capture some of that value. Right now it seems an excessive amount of money is flowing to the few with the big ideas, good or bad, in desperation to spur further growth and there's lots of discussion about the 'everything bubble' because most assets are inflated.
      - neilwilson 5y ago
        Trade has never had anything to do with barter. It’s always promises “Here’s a chicken, owe me one” Until you get that clear, you’ll not realise that the monetary circuit and the real circuit are only inductively connected. Money is the charger. Production is the toothbrush
  - 5y ago
imtringued 5y ago
> But it absolutely does inject money into the system, which is ultimately backed by "reserves" which are created out of nothing. Well, here is the kicker. The system is not the real economy, just a mechanism that lets banks borrow from each other to maintain sufficient reserves. If you want to inject money into the real economy you need to actually borrow money and do fiscal stimulus. If the government does the obvious and borrows for investments like education or infrastructure then the government not only has a liability (the debt) but also an asset (the infrastructure). If the government cuts taxes instead then it not only fails to create an asset equal to the debt it also diminishes the value of their most important asset. The ability to charge taxes. Practically speaking there are two problems here. First, the economy has to have room for government spending and second the money actually has to be spent in a way that benefits the economy. If neither are true you get inflation. I'd say the stimulus checks didn't really benefit the economy. The spending spree that so many people expected didn't happen. The unemployment benefits had the advantage that they are primarily given to people who have no income. I'm sure they contributed to inflation but the supply chains don't look great either. The explosion in energy prices cannot be explained by fiscal stimulus alone.

adam_arthur 5y ago

Yes, of course. An asset swap of newly printed cash for bonds. No offense, but sounds like you don't really understand how the Federal reserve operates. And re: your link. Talking about wage growth in nominal terms is meaningless. Wage growth has lagged inflation all this year, aside from last month. But rents are up ~15% nationally YoY, while wages only up a few percent. This rent growth has not materialized in the CPI yet, that's coming down the pipeline. So feel free to celebrate a nominally higher number while the poor get poorer. Personally, I'd rather advocate against inflationary policies that harm the poor the most. Unfortunately people who are ignorant of finance cheer on policies due to nominal increases, while the wealth gap grows ever wider.

imtringued 5y ago
"An asset swap of newly printed cash for bonds." What the hell is printed cash? QE just means banks get bank reserves which a have become a claim against the treasury bonds. Whether you own the bonds directly or indirectly via central bank reserves doesn't matter at all. Imagine the fed issues a new currency called the treasury dollars. All you can do with treasury dollars is buy treasury bonds from the fed. That's what QE does except with bank reserves which can also be used to lend out money to businesses and consumers. Really, QE is a nothing burger. It doesn't make consumers, businesses or governments more likely to borrow. It should be stopped because it is completely ineffective. All it really does is tighten the treasury bond market which means technical buyers (money market, insurance and pension funds) who really need the bonds will bid for increasingly lower yields on the bonds. You know that is a huge surprise, the idea behind QE was that people start selling their government bonds and buy higher yielding bonds from corporations. That didn't happen as much as the Fed wanted.
- sokoloff 5y ago
  Lower risk-free rates lower mortgage rates which would increase mortgage affordability and amounts borrowed. That makes me, an existing home “owner” more likely to refinance, possibly with cash-out and makes many new borrowers willing/able to borrow more money than if the risk-free rate was 5% higher. I think QE does increase borrowing; it’s not clear to me that it does it for a net good.

kennethh 5y ago

The paper from Bank of England is the best explanation I have read about how money is created. https://www.bankofengland.co.uk/quarterly- https://www.bankofengland.co.uk/quarterly- bulletin/2014/q1/money-creation-in-the-modern-economy As someone else said earlier in the thread most of the money created is by commercial banks when someone take out a loan.

bserge 5y ago
Can I get a few million to be repaid in the next 200 years? Could really use that loan.
- actually_a_dog 5y ago
  Only 200 years? Think bigger. In 2014, the UK paid back a debt that was originally issued in 1720, and that's not even the oldest government debt out there. https://historyofyesterday.com/the-oldest-debts-in-history-2aec42cdb207 https://historyofyesterday.com/the-oldest-debts-in-history-2...
- imtringued 5y ago
  Well... Austria issued 100 year bonds. I'm sure you could get investors on board by issuing bonds. I don't think a bank is going to accept that offer.
- neilwilson 5y ago
  It's never repaid, only refinanced. To repay the loan at country level, those holding the equal and opposite savings have to spend the money to create the tax flow that pays off the loan. Since people tend to want to save over time, that doesn't happen.