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Federal Reserve has no real tools to fight inflation. They can get the buckets out and start bailing but until somebody plugs the whole in the deficit there's a

Federal Reserve has no real tools to fight inflation. They can get the buckets out and start bailing but until somebody plugs the whole in the deficit there's a structural problem with the boat. People love to bring up the gold chart and be like "what happened in the 1970s!". It wasn't ending the gold standard that was the problem. It was the endless deficit spending; if you want to get a handle on inflation you need current demand to match current production.

mothballed 1y ago
The federal reserve buys deficit creating treasury securities, with newly created unbacked money. It's hard to separate deficit spending from the federal reserve and unbacked currency.
- gruez 1y ago
  That might be true during the pandemic but it's been over for years now. The fed is moving in the opposite direction, selling bonds it previously bought. https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren...
  - mothballed 1y ago
    Good point; fed also creates buyers of treasury securities, including ones it holds, through inflationary policies that pressure dollar holders further in the direction of buying inflation tracking assets (which the government is happy to swoop in and offer the ~most stable one -- allowing them to satisfy the market they create.)
    - gruez 1y ago
      >through inflationary policies that pressure dollar holders further in the direction of buying inflation tracking assets. Is this actually true? It might make sense at a surface level, but if you think a few steps further, you'd realize that that the price of "inflation tracking assets" (TIPS?) would eventually incorporate whatever inflation expectations that the market expects, thereby neutralizing any advantages it might have. Moreover there are deep markets for interest rate swaps/futures, so there's little need to pile into TIPS directly.
      - mothballed 1y ago
        High inflation pressures a near time preference in discharging USD. Also "inflation tracking" I should have written more as "inflation hedging" -- needn't be TIPS exactly. Higher inflation raises the cost of not buying treasury and other asset classes. You're right that there may not much change in the general preference in treasuries vs other non-USD asset classes, but it makes all inflation hedging boats rise. This should be obvious if you simplify the market to just USD and say bonds -- at 0% inflation the opportunity cost of not buying bonds is just the real bonds rate, whereas at 10% inflation the opportunity cost is going to approximate closer to 10+real rate. In the latter the pressure to buy bonds would be much higher. ( Of course Fed can buy treasuries with essentially money created from thin air so the opportunity cost analogy may break down for securities first purchased by the fed, which could spoil the presumption that treasury sales proportion of inflation hedging assets might not change much)
ThinkBeat 1y ago
The traditional way a central bank fights inflation, and take Norway as an example. The central bank raises interest rates, until there are enough bankrupcies and unemployment rate reaches a high enough level, The economy cools down. The nation has low inflation again. Rinse out and repeat. They do the direct opposite of bailing anyone out. Now the US is different. The Biden administration decided that the best way to fight inflation was to invent a giant pile og money and hand it out. Which heats up the economy and should raise inflation .
- TimorousBestie 1y ago
  > Now the US is different. The Biden administration decided that the best way to fight inflation was to invent a giant pile og money and hand it out. Biden did not invent quantitative easing.
  - smileysteve 1y ago
    Indeed, it was expanded greatly during the admins of Bush and Trump.
- serioussecurity 1y ago
  I'm sorry you're blaming the Biden admin for a bush era policy why?
- arunabha 1y ago
  > The Biden administration decided that the best way to fight inflation was to invent a giant pile og money and hand it out Can you provide some references for your claim? IIRC, under Biden, inflation was stoked by the Covid stimulus(arguably necessary to avoid rapid deflation due to Covid, but probably kept for too long) and the Fed moved pretty decisively in the second half of the Biden presidency to raise interest rates rapidly to combat inflation. FWIW, the inflation issue seemed to be under control and heading in the right direction before the administration changed.
  - dgfitz 1y ago
deleted 1y ago
[deleted]
gruez 1y ago
>Federal Reserve has no real tools to fight inflation. Yes, interest rates?
- wakawaka28 1y ago
  If they let interest rates go high, the government will go bankrupt along with many companies and individuals. We can't afford 20% base rates anymore. The economy is not healthy enough for that. At least I don't think anyone is ready for the shitstorm that would unleash...
  - downrightmike 1y ago
    They need inflation, it lowers the old debt burden because it is cheaper to service.
    - wakawaka28 1y ago
      No, they don't. If the debt cannot be afforded, they should default. Start by balancing the budget. This inflation will probably ruin us. Kicking the can down the road makes the reckoning worse. It's not fixing shit, and it is causing way more problems.
      - downrightmike 1y ago
        Logically, sure, but Japan has been our aspirational model since things went sideways in 2020. Illogically, even the UK is paying back interest on the South Sea company from 400 years ago. Debt isn't going anywhere even after everyone who accrued it is long dead and dust.
wakawaka28 1y ago
>People love to bring up the gold chart and be like "what happened in the 1970s!". It wasn't ending the gold standard that was the problem. It was the endless deficit spending; if you want to get a handle on inflation you need current demand to match current production. The deficit spending is the reason why we had to leave the gold standard. France, for example, sent a battleship to NYC to retrieve their gold. The US government realized that they could not give out gold for all the dollars that they spent, and went into default on that obligation. The gold standard could have kept the government honest. But they were given too much slack and they abused it to the point of having to break promises officially. The Fed cannot actually destroy all the money that they created. But they could start by not printing any more. They won't do that but they theoretically could.

mothballed 1y ago

The federal reserve buys deficit creating treasury securities, with newly created unbacked money. It's hard to separate deficit spending from the federal reserve and unbacked currency.

gruez 1y ago
That might be true during the pandemic but it's been over for years now. The fed is moving in the opposite direction, selling bonds it previously bought. https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren...
- mothballed 1y ago
  Good point; fed also creates buyers of treasury securities, including ones it holds, through inflationary policies that pressure dollar holders further in the direction of buying inflation tracking assets (which the government is happy to swoop in and offer the ~most stable one -- allowing them to satisfy the market they create.)
  - gruez 1y ago
    >through inflationary policies that pressure dollar holders further in the direction of buying inflation tracking assets. Is this actually true? It might make sense at a surface level, but if you think a few steps further, you'd realize that that the price of "inflation tracking assets" (TIPS?) would eventually incorporate whatever inflation expectations that the market expects, thereby neutralizing any advantages it might have. Moreover there are deep markets for interest rate swaps/futures, so there's little need to pile into TIPS directly.
    - mothballed 1y ago
      High inflation pressures a near time preference in discharging USD. Also "inflation tracking" I should have written more as "inflation hedging" -- needn't be TIPS exactly. Higher inflation raises the cost of not buying treasury and other asset classes. You're right that there may not much change in the general preference in treasuries vs other non-USD asset classes, but it makes all inflation hedging boats rise. This should be obvious if you simplify the market to just USD and say bonds -- at 0% inflation the opportunity cost of not buying bonds is just the real bonds rate, whereas at 10% inflation the opportunity cost is going to approximate closer to 10+real rate. In the latter the pressure to buy bonds would be much higher. ( Of course Fed can buy treasuries with essentially money created from thin air so the opportunity cost analogy may break down for securities first purchased by the fed, which could spoil the presumption that treasury sales proportion of inflation hedging assets might not change much)

ThinkBeat 1y ago

The traditional way a central bank fights inflation, and take Norway as an example. The central bank raises interest rates, until there are enough bankrupcies and unemployment rate reaches a high enough level, The economy cools down. The nation has low inflation again. Rinse out and repeat. They do the direct opposite of bailing anyone out. Now the US is different. The Biden administration decided that the best way to fight inflation was to invent a giant pile og money and hand it out. Which heats up the economy and should raise inflation .

TimorousBestie 1y ago
> Now the US is different. The Biden administration decided that the best way to fight inflation was to invent a giant pile og money and hand it out. Biden did not invent quantitative easing.
- smileysteve 1y ago
  Indeed, it was expanded greatly during the admins of Bush and Trump.
serioussecurity 1y ago
I'm sorry you're blaming the Biden admin for a bush era policy why?
arunabha 1y ago
> The Biden administration decided that the best way to fight inflation was to invent a giant pile og money and hand it out Can you provide some references for your claim? IIRC, under Biden, inflation was stoked by the Covid stimulus(arguably necessary to avoid rapid deflation due to Covid, but probably kept for too long) and the Fed moved pretty decisively in the second half of the Biden presidency to raise interest rates rapidly to combat inflation. FWIW, the inflation issue seemed to be under control and heading in the right direction before the administration changed.
- dgfitz 1y ago

deleted 1y ago

[deleted]

gruez 1y ago

>Federal Reserve has no real tools to fight inflation. Yes, interest rates?

wakawaka28 1y ago
If they let interest rates go high, the government will go bankrupt along with many companies and individuals. We can't afford 20% base rates anymore. The economy is not healthy enough for that. At least I don't think anyone is ready for the shitstorm that would unleash...
- downrightmike 1y ago
  They need inflation, it lowers the old debt burden because it is cheaper to service.
  - wakawaka28 1y ago
    No, they don't. If the debt cannot be afforded, they should default. Start by balancing the budget. This inflation will probably ruin us. Kicking the can down the road makes the reckoning worse. It's not fixing shit, and it is causing way more problems.
    - downrightmike 1y ago
      Logically, sure, but Japan has been our aspirational model since things went sideways in 2020. Illogically, even the UK is paying back interest on the South Sea company from 400 years ago. Debt isn't going anywhere even after everyone who accrued it is long dead and dust.

wakawaka28 1y ago

>People love to bring up the gold chart and be like "what happened in the 1970s!". It wasn't ending the gold standard that was the problem. It was the endless deficit spending; if you want to get a handle on inflation you need current demand to match current production. The deficit spending is the reason why we had to leave the gold standard. France, for example, sent a battleship to NYC to retrieve their gold. The US government realized that they could not give out gold for all the dollars that they spent, and went into default on that obligation. The gold standard could have kept the government honest. But they were given too much slack and they abused it to the point of having to break promises officially. The Fed cannot actually destroy all the money that they created. But they could start by not printing any more. They won't do that but they theoretically could.