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The various Feds' open market operations and reverse repo operations inject/sterilize billions of dollars every day from the markets. $3 trillion may seem like

The various Feds' open market operations and reverse repo operations inject/sterilize billions of dollars every day from the markets. $3 trillion may seem like a big amount on the balance sheet to unwind - but that kind of liquidity can be soaked out of the system pretty easily (if done carefully) once the economy gets going and the Fed is able to raise rates (ie secondary credit markets begin to function well enough - e.g. the traditional GSE-sponsored lending/commercial-paper lending etc). Edit: I am trying to make a valid clarification in this thread. Your sarcasm is unwarranted.

carsongross 14y ago
_shrug_ Again, that's only what they are telling us about. Pulling a couple trillion out of the economy is going to absolutely taco it (that's thousands of those billions you mention) since we are effectively an infinitely leveraged fractional reserve system now, even ignoring derivatives. I'd be more sympathetic to your pat-us-on-the-head attitude if the mainline economists had been right about anything for the past decade. There's a whole slew of economists who actually got the debt crisis correct and might be worth looking into, starting with Steve Keen. The federal reserve has been hiding it's destruction of the average person's purchasing power behind academic rhetoric and obfuscation for over 100 years now, with the aid and abetment of the economic mainstream and the financial world. Don't assume that because we don't agree with you we don't understand what you are saying. We just don't believe it.
- photon137 14y ago
  How on earth do I have a "pat-us-on-the-head" attitude? You're just infusing your comments with what I think is political (possibly Ron Paul-esque) rhetoric without understanding how monetary policy transmission and Fed lending works even when I am trying to explain the thing and providing verifiable facts. I have nothing to say about schools of macroeconomic thought because then you are very likely to turn this in to a political issue (given that you consider fractional-reserve banking as "infinitely" leveraged) and HN isn't the right forum. I have my views but I'll keep them to myself. Edit: Also, the Fed isn't "taking out" trillions out of the economy. Neither did it inject trillions into the economy. It is just swapping one sort of asset with another to ensure that liquidity, as a whole, remains constant. During the crisis, it swapped out non-performing assets (illiquid) with plain cash (liquid). When the economy fares better and appetite for credit-risk returns, the illiquid assets also become liquid with a much fairer valuation. Hence, now the Fed would swap out cash for these assets.
- jfarmer 14y ago
  As a neutral third party who has no strong opinion about this issue and limited background, photon137 is making the much stronger (and informative) case. Not sure if your goal is to have an impact on people like me WRT this issue, but if so, you're probably having the opposite impact you intend to.
  - temphn 14y ago
    Strongly disagree. photon137 is just copy-pasting the conventional wisdom into a comments thread and calling it a grand insight. Yet the deference afforded these "experts" is vastly disproportionate to the rate at which economics produces testable hypotheses. There is no such thing as a "right-wing" and a "left-wing" Nobelist in physics, but there is in economics. You quote Krugman, we quote Hayek, you quote Stiglitz, we quote Friedman, and so it goes. Which is why this plot is so important: http://www.intellectualtakeout.org/sites/www.intellectualtakeout.org/files/bernteinromerupdated.jpg http://www.intellectualtakeout.org/sites/www.intellectualtak... If Bernanke and Obama actually knew what they were doing, there would be a close correspondence between theory and reality. There isn't. It's very rare that these folks actually make concrete predictions that are tested in the future. So let's make some predictions. You and photon137 can make some, and then we will make some.
    - jfarmer 14y ago
      You strongly disagree that photon137 sounds more reasoned and compelling to me? You're welcome to disagree, but I'll be happy to tell you flat out you're wrong. My point was about the impact of their respective statements, not the content.
      - temphn 14y ago
        Fantastic. All I care about is the content. In any case, your comment was no simple personal testimonial, but an attempt to tell carsongross that the "crowd was against him". This is just the conventional wisdom attack again. That is not the case anymore. The crowd is not against him. It's too bad that pg has hidden upvote totals, as the bien pensants who support the bailout policies of Bush, Bernanke[1], and Obama would realize that millions of informed people now oppose them. To be an informed person, it is no longer sufficient to parrot what is read in the New York Times or the Wall Street Journal. [1] Ben Bernanke, Bush appointee.

carsongross 14y ago

_shrug_ Again, that's only what they are telling us about. Pulling a couple trillion out of the economy is going to absolutely taco it (that's thousands of those billions you mention) since we are effectively an infinitely leveraged fractional reserve system now, even ignoring derivatives. I'd be more sympathetic to your pat-us-on-the-head attitude if the mainline economists had been right about anything for the past decade. There's a whole slew of economists who actually got the debt crisis correct and might be worth looking into, starting with Steve Keen. The federal reserve has been hiding it's destruction of the average person's purchasing power behind academic rhetoric and obfuscation for over 100 years now, with the aid and abetment of the economic mainstream and the financial world. Don't assume that because we don't agree with you we don't understand what you are saying. We just don't believe it.

photon137 14y ago
How on earth do I have a "pat-us-on-the-head" attitude? You're just infusing your comments with what I think is political (possibly Ron Paul-esque) rhetoric without understanding how monetary policy transmission and Fed lending works even when I am trying to explain the thing and providing verifiable facts. I have nothing to say about schools of macroeconomic thought because then you are very likely to turn this in to a political issue (given that you consider fractional-reserve banking as "infinitely" leveraged) and HN isn't the right forum. I have my views but I'll keep them to myself. Edit: Also, the Fed isn't "taking out" trillions out of the economy. Neither did it inject trillions into the economy. It is just swapping one sort of asset with another to ensure that liquidity, as a whole, remains constant. During the crisis, it swapped out non-performing assets (illiquid) with plain cash (liquid). When the economy fares better and appetite for credit-risk returns, the illiquid assets also become liquid with a much fairer valuation. Hence, now the Fed would swap out cash for these assets.
jfarmer 14y ago
As a neutral third party who has no strong opinion about this issue and limited background, photon137 is making the much stronger (and informative) case. Not sure if your goal is to have an impact on people like me WRT this issue, but if so, you're probably having the opposite impact you intend to.
- temphn 14y ago
  Strongly disagree. photon137 is just copy-pasting the conventional wisdom into a comments thread and calling it a grand insight. Yet the deference afforded these "experts" is vastly disproportionate to the rate at which economics produces testable hypotheses. There is no such thing as a "right-wing" and a "left-wing" Nobelist in physics, but there is in economics. You quote Krugman, we quote Hayek, you quote Stiglitz, we quote Friedman, and so it goes. Which is why this plot is so important: http://www.intellectualtakeout.org/sites/www.intellectualtakeout.org/files/bernteinromerupdated.jpg http://www.intellectualtakeout.org/sites/www.intellectualtak... If Bernanke and Obama actually knew what they were doing, there would be a close correspondence between theory and reality. There isn't. It's very rare that these folks actually make concrete predictions that are tested in the future. So let's make some predictions. You and photon137 can make some, and then we will make some.
  - jfarmer 14y ago
    You strongly disagree that photon137 sounds more reasoned and compelling to me? You're welcome to disagree, but I'll be happy to tell you flat out you're wrong. My point was about the impact of their respective statements, not the content.
    - temphn 14y ago
      Fantastic. All I care about is the content. In any case, your comment was no simple personal testimonial, but an attempt to tell carsongross that the "crowd was against him". This is just the conventional wisdom attack again. That is not the case anymore. The crowd is not against him. It's too bad that pg has hidden upvote totals, as the bien pensants who support the bailout policies of Bush, Bernanke[1], and Obama would realize that millions of informed people now oppose them. To be an informed person, it is no longer sufficient to parrot what is read in the New York Times or the Wall Street Journal. [1] Ben Bernanke, Bush appointee.