3 ms·

No, the balance sheet will not sort itself out over time. Every time the fed starts making progress markets tank and rich people flex their influence to get the

No, the balance sheet will not sort itself out over time. Every time the fed starts making progress markets tank and rich people flex their influence to get their assets pumped back up. How much do you want to bet that it goes under, say, $1T by 2030?

arcticbull 3y ago
That's not the argument I am making, I'm saying if you leave the balance sheet alone it will shrink. We don't need anyone to step in and sop anything up. I'm not opining on - nor do I really care - about future growth of the balance sheet. Generally speaking increases in the size of the balance sheet represent flows into the economy of money. Static balance sheets, or ones that roll off over time, have little to no impact.
- jjoonathan 3y ago
  It's a bit weird that you seem so focused on a hypothetical future that isn't going to happen (balance sheet rolls off) but don't care about the perpetually rising balance sheet that is actually happening and will almost certainly continue to happen. Why is your hypothetical parallel universe more interesting than this universe? We've set up a system to pump trillions into rich peoples' pockets every time they pull the lever and they are going to keep pulling that lever.
  - arcticbull 3y ago
    Whose pockets does new money go into and by what mechanism?
    - jjoonathan 3y ago
      Asset owners, in proportion to how many assets they own, because the fed buys the assets.
      - deleted 3y ago
        [deleted]
      - arcticbull 3y ago
        They're not exactly out there buying the S&P 500. They overwhelmingly own treasuries and mortgage-backed securities. They basically buy bonds (which are future money) and replace them with cash (present money). They're basically just transforming duration. Those debt obligations however remain. That future money still has to be paid in to cancel out the debt, whether that comes from home borrowers or from the Treasury. This allows the institutions who held them to then make loans to individuals.
        jjoonathan 3y ago
        You know that rich people don't just own stocks, right? While the talking heads were clutching their pearls, wringing their wrists, and wagging their fingers over $400B in stimulus checks, ten times that amount was being printed into the real estate market, distributed in rough proportion to real estate holdings. Rich people paying themselves for being rich. "Just" isn't how I'd describe it. Not in magnitude, not in morals. > Those debt obligations however remain. That future money still has to be paid in to cancel out the debt, whether that comes from home borrowers or from the Treasury Why? Why do you keep engaging with the hypothetical universe that we do not inhabit where they don't pull the lever again, even though they got away with printing trillions into their pockets the last two times? Those debt obligations are getting paid back like the father of a deadbeat son is getting paid back: he'll roll the loans so that he can tell his golf buddies that he has been paid back, sure, but he isn't going to be paid back and he doesn't really expect to be paid back.
        arcticbull 3y ago
        My point is duration transformation doesn't create new money, it moves future money into the present. This may increase the money supply immediately, but it drops over time back to where it would have been. Money isn't "printed" in the real estate market, valuations are notional. > Those debt obligations are getting paid back like the father of a deadbeat son is getting paid back: he'll roll the loans so that he can tell his golf buddies that he has been paid back, sure, but he isn't going to be paid back and he doesn't really expect to be paid back. So what?

arcticbull 3y ago

That's not the argument I am making, I'm saying if you leave the balance sheet alone it will shrink. We don't need anyone to step in and sop anything up. I'm not opining on - nor do I really care - about future growth of the balance sheet. Generally speaking increases in the size of the balance sheet represent flows into the economy of money. Static balance sheets, or ones that roll off over time, have little to no impact.

jjoonathan 3y ago
It's a bit weird that you seem so focused on a hypothetical future that isn't going to happen (balance sheet rolls off) but don't care about the perpetually rising balance sheet that is actually happening and will almost certainly continue to happen. Why is your hypothetical parallel universe more interesting than this universe? We've set up a system to pump trillions into rich peoples' pockets every time they pull the lever and they are going to keep pulling that lever.
- arcticbull 3y ago
  Whose pockets does new money go into and by what mechanism?
  - jjoonathan 3y ago
    Asset owners, in proportion to how many assets they own, because the fed buys the assets.
    - deleted 3y ago
      [deleted]
    - arcticbull 3y ago
      They're not exactly out there buying the S&P 500. They overwhelmingly own treasuries and mortgage-backed securities. They basically buy bonds (which are future money) and replace them with cash (present money). They're basically just transforming duration. Those debt obligations however remain. That future money still has to be paid in to cancel out the debt, whether that comes from home borrowers or from the Treasury. This allows the institutions who held them to then make loans to individuals.
      - jjoonathan 3y ago
        You know that rich people don't just own stocks, right? While the talking heads were clutching their pearls, wringing their wrists, and wagging their fingers over $400B in stimulus checks, ten times that amount was being printed into the real estate market, distributed in rough proportion to real estate holdings. Rich people paying themselves for being rich. "Just" isn't how I'd describe it. Not in magnitude, not in morals. > Those debt obligations however remain. That future money still has to be paid in to cancel out the debt, whether that comes from home borrowers or from the Treasury Why? Why do you keep engaging with the hypothetical universe that we do not inhabit where they don't pull the lever again, even though they got away with printing trillions into their pockets the last two times? Those debt obligations are getting paid back like the father of a deadbeat son is getting paid back: he'll roll the loans so that he can tell his golf buddies that he has been paid back, sure, but he isn't going to be paid back and he doesn't really expect to be paid back.
        arcticbull 3y ago
        My point is duration transformation doesn't create new money, it moves future money into the present. This may increase the money supply immediately, but it drops over time back to where it would have been. Money isn't "printed" in the real estate market, valuations are notional. > Those debt obligations are getting paid back like the father of a deadbeat son is getting paid back: he'll roll the loans so that he can tell his golf buddies that he has been paid back, sure, but he isn't going to be paid back and he doesn't really expect to be paid back. So what?