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The Fed doesn't have the tools to deal with this problem, so there is no point in blaming them. The Fed can add to the money supply and they can regulate the ve

The Fed doesn't have the tools to deal with this problem, so there is no point in blaming them. The Fed can add to the money supply and they can regulate the velocity of money, but they can't destroy it. Congress, and only Congress, can reduce the money supply by taxing and using the taxes to pay back the original issuance to balance the books. As we know, conservatives in Congress (which includes a bunch of Democratic members) refuse to pass taxes unless they fall disproportionately on the poor. Thus, we are unlikely to see a real resolution to this problem, just more can kicking.

zozbot234 4y ago
The Fed can absolutely reduce the money supply, by selling assets that they're holding on their books. You're right though that an austerity policy by Congress (running budget surpluses by lowering spending and/or increasing taxes) would have much the same effect.
- arrosenberg 4y ago
  Are they actually able to sell those assets? My understanding may be incomplete, but it seems like most of those assets are distressed - that's the whole reason the fed is holding them in the first place.
  - Rury 4y ago
    They don't have to sell assets to destroy money. All they have to do is let their securities mature, and not replace them with anything.
rhexs 4y ago
Or they could just spend less. The solution is in middle, but good luck getting that across in these polarized times. I think there will be more willingness to negotiate across the aisle as inflation/fuel continues to heat up.
s1artibartfast 4y ago
Monetary policy just borrows from the future to spend in the present. Like any borrowing, this can be smart or stupid. The federal government policy over borrowed and spent on frivolous things that did not produce a return. You can absolutely hold them accountable for past actions
adam_arthur 4y ago
The Fed can destroy money via QT. And higher rates reduce the multiplier/power of money. Also inflation is primarily driven by middle/lower class having higher disposable income, not upper class. The propensity to spend a marginal dollar goes up significantly, the poorer you are. If Jeff Bezos sells $1B of amazon tomorrow, it's likely disinflationary in practice because he's taking that money from buyers and not spending it at the same rate It's possible that forced selling of assets through new tax schemes could be disinflationary by routing money from buyers to the government via taxes. But then again, most of the money in equities is owned by wealthy/low propensity to consume people
- arrosenberg 4y ago
  There is definitely inflation due to the upper class having more money, they are just using it to buy assets instead of goods. Cheap money caused consolidation and asset price increases - you can slow it down with QT, but I don’t think you can re-rationalize the economy without involving the FTC and Congress to unwind the effects. The asset consolidation is one of the major factors driving the inflation on goods.
  - adam_arthur 4y ago
    Asset price inflation is separate from goods inflation and is primarily driven by low interest rates. You can blame the Fed on that one
    - arrosenberg 4y ago
      I do blame the Fed on that one, but that doesn’t mean they have the right tools to fix it. I think its kind if naive to believe that asset inflation has nothing to do with goods inflation. PE and megacorps have been buying up everything in sight and you want me to believe its a coincidence that prices are suddenly skyrocketing and the market is responding sluggishly? Because that’s exactly what you would expect if a bunch of parasites were suddenly running most of the economy. You have to clean up the market of consolidation and tax the money away from the wealthy, who got 85% of the stimulus and used it to buy up the economy.

zozbot234 4y ago

The Fed can absolutely reduce the money supply, by selling assets that they're holding on their books. You're right though that an austerity policy by Congress (running budget surpluses by lowering spending and/or increasing taxes) would have much the same effect.

arrosenberg 4y ago
Are they actually able to sell those assets? My understanding may be incomplete, but it seems like most of those assets are distressed - that's the whole reason the fed is holding them in the first place.
- Rury 4y ago
  They don't have to sell assets to destroy money. All they have to do is let their securities mature, and not replace them with anything.

rhexs 4y ago

Or they could just spend less. The solution is in middle, but good luck getting that across in these polarized times. I think there will be more willingness to negotiate across the aisle as inflation/fuel continues to heat up.

s1artibartfast 4y ago

Monetary policy just borrows from the future to spend in the present. Like any borrowing, this can be smart or stupid. The federal government policy over borrowed and spent on frivolous things that did not produce a return. You can absolutely hold them accountable for past actions

adam_arthur 4y ago

The Fed can destroy money via QT. And higher rates reduce the multiplier/power of money. Also inflation is primarily driven by middle/lower class having higher disposable income, not upper class. The propensity to spend a marginal dollar goes up significantly, the poorer you are. If Jeff Bezos sells $1B of amazon tomorrow, it's likely disinflationary in practice because he's taking that money from buyers and not spending it at the same rate It's possible that forced selling of assets through new tax schemes could be disinflationary by routing money from buyers to the government via taxes. But then again, most of the money in equities is owned by wealthy/low propensity to consume people

arrosenberg 4y ago
There is definitely inflation due to the upper class having more money, they are just using it to buy assets instead of goods. Cheap money caused consolidation and asset price increases - you can slow it down with QT, but I don’t think you can re-rationalize the economy without involving the FTC and Congress to unwind the effects. The asset consolidation is one of the major factors driving the inflation on goods.
- adam_arthur 4y ago
  Asset price inflation is separate from goods inflation and is primarily driven by low interest rates. You can blame the Fed on that one
  - arrosenberg 4y ago
    I do blame the Fed on that one, but that doesn’t mean they have the right tools to fix it. I think its kind if naive to believe that asset inflation has nothing to do with goods inflation. PE and megacorps have been buying up everything in sight and you want me to believe its a coincidence that prices are suddenly skyrocketing and the market is responding sluggishly? Because that’s exactly what you would expect if a bunch of parasites were suddenly running most of the economy. You have to clean up the market of consolidation and tax the money away from the wealthy, who got 85% of the stimulus and used it to buy up the economy.