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"What gives is that the Fed isn't printing money and lacks the authority to do so. QE is not a printing press. It doesn't conjure money into being. QE can't cau

"What gives is that the Fed isn't printing money and lacks the authority to do so. QE is not a printing press. It doesn't conjure money into being. QE can't cause inflation and its effects on long-term interest rates are questionable at best." You can go to the feds website and see the dollar amount of bonds they are buying every month. Where exactly do you think this money comes from? They buy these bonds with newly created money. In the modern system they don't literally print paper money they do it through the expansion of credit. Their bond buying absolutely explains low bond yields. https://www.newyorkfed.org/markets/domestic-market-operations/monetary-policy-implementation/treasury-securities/treasury-securities-operational-details https://www.newyorkfed.org/markets/domestic-market-operation...

BozeWolf 5y ago
Commercial Banks print money. Central banks dont do that. Commercial banks create money with loans. If you pay back a loan, your money is removed from the system. Read this: https://themacrocompass.substack.com/p/tmc-6-all-they-told-you-about-printing https://themacrocompass.substack.com/p/tmc-6-all-they-told-y... Banks wont lend (=print) more because of risk/reward ratios. Credit worthiness and yields. I like the terminology “inside money” and “outside money” as well.
- pmorici 5y ago
  This article literally says, "The central bank created new reserves out of thin air" the premise of the article seems to be more about taking issue with the fact that the "money printer go brrr" meme popularized in the media doesn't tell the whole story and over simplifies the mechanism. The key point is that when the Fed buys a bond from an investor that investor has cash which they can then take an buy something else with. Bond buying drives down rates and to the extent rates are kept low because of the bond buying causes other assets like stocks and real-estate to inflate in price because instead of buying another bond the investor buys some other kind of asset. People then take out loans collateralized by these inflated assets and there is your inflation. So long as you always keep total borrowing on an uptrend over time you basically create permanent inflation.
  - martinko 5y ago
    The issue with reserves is that they are not money, they have no way of getting into the real economy, they just sit on bank's balance sheets. At the end of the day, its up to commercial banks to create new, spendable money. The whole reserve thing is just to incentivize them.
    - JumpCrisscross 5y ago
      > issue with reserves is that they are not money When talking about money and banking, the word "money" is useless at best. Reserves, Federal Reserve notes (i.e. paper money), coins, deposits, Treasuries, commercial paper, gold and wampum are each money. Central banks converting Treasuries and mortgage-backed securities into reserves lets commercial banks create deposits at greater scale. That ceteris paribus increases aggregate demand which can put pressure on broader price levels.
neilwilson 5y ago
" They buy these bonds with newly created money. " They buy the bonds with different bonds. One bond is a (say) 25 year bond at 2.5%, the other is a perpetual bond at federal funds rate that can only be held by those with a Federal Reserve account. And all that does is change the composition of the asset side of a bank meaning they get less free income.
- im3w1l 5y ago
  The perpetual bond is arguably money.
  - neilwilson 5y ago
    It's all money. Money things are everywhere and are perpetually created and destroyed all the time.
bko 5y ago
The poster is also mixing up a lot of concepts. There's a glut of cash worldwide so naturally that affects European banks as well, and they may choose to put it in USD since their rates are negative. I like how someone can read a story about banks having too much money and not being able to lend it out fast enough, resorting to parking it in an incredibly low yield asset and the take away is "aha! see inflation is not and will not be a problem! Central banks don't actually print money" Gold may be a shitty inflation hedge this go-around. But the stock market doesn't appear to be. Do you think its weird the stock market is up 30% from the peak prior to a global pandemic? Where do you think that money came from, or is that just optimism, because you know, we all handled this pandemic so well?
- bluecalm 5y ago
  It's natural stocks go up if no one has to sell (because credit is cheap) and economic opportunities are limited. My read on the situation is that stocks were criminally undervalued for decades and just recently started reaching sane valuations. It's a good thing as well. It shouldn't be the case that you can earn 5%+ a year for doing nothing. P/e ratios in 30s and 40s are the new normal at least for big established companies.
  - bko 5y ago
    > My read on the situation is that stocks were criminally undervalued for decades and just recently started reaching sane valuations. PE ratio is pretty high historically, only higher briefly in 2000 and 2008, both before huge corrections https://www.macrotrends.net/2577/sp-500-pe-ratio-price-to-earnings-chart https://www.macrotrends.net/2577/sp-500-pe-ratio-price-to-ea...
pezzana 5y ago
QE is an asset swap between the Fed and a bank. The Fed gets a treasury and the bank gets a reserve asset. The reserve asset can't leave the banking system. It can't be used to buy stocks. It can't fund pensions. It can't buy yachts or mansions. It doesn't pay salaries. Almost every source focusses on the purchase of the treasury from the bank while completely ignoring the other side of the ledger. No money creation occurs in QE. It simply converts a treasury held by a bank into a reserve asset held at the Fed. It's easy to confirm that QE has little to no effect on treasury yields. Just look at the long term trend in the 30-year. If anything there is a negative correlation between Fed bond buying and long-term bond prices. That's the opposite of what should happen if the Fed were moving the market. More than that, the long-term channel since the 1980s in yields hasn't budged, despite multiple rounds of QE. That's not control over the market.

BozeWolf 5y ago

Commercial Banks print money. Central banks dont do that. Commercial banks create money with loans. If you pay back a loan, your money is removed from the system. Read this: https://themacrocompass.substack.com/p/tmc-6-all-they-told-you-about-printing https://themacrocompass.substack.com/p/tmc-6-all-they-told-y... Banks wont lend (=print) more because of risk/reward ratios. Credit worthiness and yields. I like the terminology “inside money” and “outside money” as well.

pmorici 5y ago
This article literally says, "The central bank created new reserves out of thin air" the premise of the article seems to be more about taking issue with the fact that the "money printer go brrr" meme popularized in the media doesn't tell the whole story and over simplifies the mechanism. The key point is that when the Fed buys a bond from an investor that investor has cash which they can then take an buy something else with. Bond buying drives down rates and to the extent rates are kept low because of the bond buying causes other assets like stocks and real-estate to inflate in price because instead of buying another bond the investor buys some other kind of asset. People then take out loans collateralized by these inflated assets and there is your inflation. So long as you always keep total borrowing on an uptrend over time you basically create permanent inflation.
- martinko 5y ago
  The issue with reserves is that they are not money, they have no way of getting into the real economy, they just sit on bank's balance sheets. At the end of the day, its up to commercial banks to create new, spendable money. The whole reserve thing is just to incentivize them.
  - JumpCrisscross 5y ago
    > issue with reserves is that they are not money When talking about money and banking, the word "money" is useless at best. Reserves, Federal Reserve notes (i.e. paper money), coins, deposits, Treasuries, commercial paper, gold and wampum are each money. Central banks converting Treasuries and mortgage-backed securities into reserves lets commercial banks create deposits at greater scale. That ceteris paribus increases aggregate demand which can put pressure on broader price levels.

neilwilson 5y ago

" They buy these bonds with newly created money. " They buy the bonds with different bonds. One bond is a (say) 25 year bond at 2.5%, the other is a perpetual bond at federal funds rate that can only be held by those with a Federal Reserve account. And all that does is change the composition of the asset side of a bank meaning they get less free income.

im3w1l 5y ago
The perpetual bond is arguably money.
- neilwilson 5y ago
  It's all money. Money things are everywhere and are perpetually created and destroyed all the time.

bko 5y ago

The poster is also mixing up a lot of concepts. There's a glut of cash worldwide so naturally that affects European banks as well, and they may choose to put it in USD since their rates are negative. I like how someone can read a story about banks having too much money and not being able to lend it out fast enough, resorting to parking it in an incredibly low yield asset and the take away is "aha! see inflation is not and will not be a problem! Central banks don't actually print money" Gold may be a shitty inflation hedge this go-around. But the stock market doesn't appear to be. Do you think its weird the stock market is up 30% from the peak prior to a global pandemic? Where do you think that money came from, or is that just optimism, because you know, we all handled this pandemic so well?

bluecalm 5y ago
It's natural stocks go up if no one has to sell (because credit is cheap) and economic opportunities are limited. My read on the situation is that stocks were criminally undervalued for decades and just recently started reaching sane valuations. It's a good thing as well. It shouldn't be the case that you can earn 5%+ a year for doing nothing. P/e ratios in 30s and 40s are the new normal at least for big established companies.
- bko 5y ago
  > My read on the situation is that stocks were criminally undervalued for decades and just recently started reaching sane valuations. PE ratio is pretty high historically, only higher briefly in 2000 and 2008, both before huge corrections https://www.macrotrends.net/2577/sp-500-pe-ratio-price-to-earnings-chart https://www.macrotrends.net/2577/sp-500-pe-ratio-price-to-ea...

pezzana 5y ago

QE is an asset swap between the Fed and a bank. The Fed gets a treasury and the bank gets a reserve asset. The reserve asset can't leave the banking system. It can't be used to buy stocks. It can't fund pensions. It can't buy yachts or mansions. It doesn't pay salaries. Almost every source focusses on the purchase of the treasury from the bank while completely ignoring the other side of the ledger. No money creation occurs in QE. It simply converts a treasury held by a bank into a reserve asset held at the Fed. It's easy to confirm that QE has little to no effect on treasury yields. Just look at the long term trend in the 30-year. If anything there is a negative correlation between Fed bond buying and long-term bond prices. That's the opposite of what should happen if the Fed were moving the market. More than that, the long-term channel since the 1980s in yields hasn't budged, despite multiple rounds of QE. That's not control over the market.