4 ms·

How does it benefit the rich? Suppose I'm rich. The Fed creates a dollar. The Fed offers me a dollar for my treasury bill worth $1. I accept. As a result, I am

How does it benefit the rich? Suppose I'm rich. The Fed creates a dollar. The Fed offers me a dollar for my treasury bill worth $1. I accept. As a result, I am now a dollar richer but a $1 treasury bill poorer. Have I gained? I have $1 more in money, but $1 less in assets. So I'd say no, I haven't gained. The only way I gain is if the Fed pays me more than the treasury bill is worth. And since the Fed pays market price, this is difficult to do.

yummyfajitas 13y ago
To be completely fair, the fed will move the market a little bit and will have to cross the spread. I.e. if the bid/ask is $100/$100.5, the fed will have to buy at $100.5, even if the next market trade might have happened at $100.25. So the rich owners of treasuries do reap a small reward, something on the order of the size of the spread. That said, your point is generally correct. Buying treasuries results in $100 of money injected into the economy, while redistributing only $0.25 of wealth.
- nerfhammer 13y ago
  In principle increase on the demand side will raise the price of a commodity short term. Meanwhile raising the market price of bonds makes debt servicing less expensive, saving taxpayers' money. Unless the market expects inflation, lowering bond prices again.
- notahacker 13y ago
  Focusing on what happens at the margin also excludes the bigger picture, which is that the act of carrying out monetary expansion through the issue of bonds paying risk-free real interest (as opposed to helicopter dropping printed money or channeling it through fiscal policy) is a big subsidy for fractional reserve banks and cautious holders of liquid wealth. That's not to say there aren't massive gains to society from a policy mechanism that both provides a relatively efficient and reversible means to manage inflation and helps stabilise the banking system, but the fact is it favours the wealthy much more than the alternatives.
- dllthomas 13y ago
  I'm not convinced it really injects the full $100. It's swapping something that's basically cash for something that is cash.
pedrocr 13y ago
>The only way I gain is if the Fed pays me more than the treasury bill is worth. And since the Fed pays market price, this is difficult to do. The Fed is a large enough new buyer that it will move the market price.
code4life 13y ago
In many ways, I'll describe two. The newly created money is worth more when it's new. When the average person finally receives the money, the value is worth less through inflation. Secondly, the rich can borrow money from the fed at 0%. Then they can buy bonds from the government and receive interest on that. How does the average person do that?
jellicle 13y ago
If the Fed instead decided to hire poor citizens to dig ditches and build roads at a flat rate of $12/hour, the effect would be obvious to everyone - "they're distorting the minimum wage labor market! driving honest Walmarts out of business! businesses won't be able to find anyone for $7.25/hour, they'll have to pay more!" Every right-wing commenter in the world would immediately see that this is wealth redistributing socialism and needs to be stopped instantly. It's the same if you decide to pay rich people for their bonds. Only, you know, it helps rich people instead. You bought a million dollars of bonds last year, this year you can sell them for $1.1 million. The profit goes straight into the pockets of... people who can afford to buy a million dollars of bonds.
scotty79 13y ago
> How does it benefit the rich? I guess you are vastly more likely to own a treasury bill if you are rich. If you are poor Fed buying treasury bills does nothing for you.

yummyfajitas 13y ago

To be completely fair, the fed will move the market a little bit and will have to cross the spread. I.e. if the bid/ask is $100/$100.5, the fed will have to buy at $100.5, even if the next market trade might have happened at $100.25. So the rich owners of treasuries do reap a small reward, something on the order of the size of the spread. That said, your point is generally correct. Buying treasuries results in $100 of money injected into the economy, while redistributing only $0.25 of wealth.

nerfhammer 13y ago
In principle increase on the demand side will raise the price of a commodity short term. Meanwhile raising the market price of bonds makes debt servicing less expensive, saving taxpayers' money. Unless the market expects inflation, lowering bond prices again.
notahacker 13y ago
Focusing on what happens at the margin also excludes the bigger picture, which is that the act of carrying out monetary expansion through the issue of bonds paying risk-free real interest (as opposed to helicopter dropping printed money or channeling it through fiscal policy) is a big subsidy for fractional reserve banks and cautious holders of liquid wealth. That's not to say there aren't massive gains to society from a policy mechanism that both provides a relatively efficient and reversible means to manage inflation and helps stabilise the banking system, but the fact is it favours the wealthy much more than the alternatives.
dllthomas 13y ago
I'm not convinced it really injects the full $100. It's swapping something that's basically cash for something that is cash.

pedrocr 13y ago

>The only way I gain is if the Fed pays me more than the treasury bill is worth. And since the Fed pays market price, this is difficult to do. The Fed is a large enough new buyer that it will move the market price.

code4life 13y ago

In many ways, I'll describe two. The newly created money is worth more when it's new. When the average person finally receives the money, the value is worth less through inflation. Secondly, the rich can borrow money from the fed at 0%. Then they can buy bonds from the government and receive interest on that. How does the average person do that?

jellicle 13y ago

If the Fed instead decided to hire poor citizens to dig ditches and build roads at a flat rate of $12/hour, the effect would be obvious to everyone - "they're distorting the minimum wage labor market! driving honest Walmarts out of business! businesses won't be able to find anyone for $7.25/hour, they'll have to pay more!" Every right-wing commenter in the world would immediately see that this is wealth redistributing socialism and needs to be stopped instantly. It's the same if you decide to pay rich people for their bonds. Only, you know, it helps rich people instead. You bought a million dollars of bonds last year, this year you can sell them for $1.1 million. The profit goes straight into the pockets of... people who can afford to buy a million dollars of bonds.

scotty79 13y ago

> How does it benefit the rich? I guess you are vastly more likely to own a treasury bill if you are rich. If you are poor Fed buying treasury bills does nothing for you.