[HN Gopher] Since mid-April, the Fed has withdrawn ~$140B of liq...
___________________________________________________________________
Since mid-April, the Fed has withdrawn ~$140B of liquidity from
financial system
Author : cs702
Score : 109 points
Date : 2022-09-21 18:41 UTC (4 hours ago)
(HTM) web link (fred.stlouisfed.org)
(TXT) w3m dump (fred.stlouisfed.org)
| RC_ITR wrote:
| So here's what's happening for anyone who wants more context.
|
| The US Treasury issues debt (called Treasuries) to fund US
| government operations. The US Treasury is a 'traditional' part of
| the US government and its debt is considered as close to 'risk-
| free' as you can get today (some combination of the US
| government's ability to indefinitely tax the largest/most
| advanced economy in the world + the US military are the two
| things cited as to why this is true).
|
| The US Fed is a less traditional part of the US Government. It is
| technically a bank that the government owns, but voters have no
| direct means of influencing policy.
|
| Previously, The Fed would 'manage' the behavior of private banks
| by either controlling the money supply (an increasingly abstract
| concept in the age of digital money) or adjusting the super
| short-term interest rate at which it loans money to banks who
| need it in a pinch (increasingly less relevant for a variety of
| factors). They actually transacted very little with the Treasury
| in this period.
|
| In 2008, The Fed found that neither of their tried and true tools
| was good enough to get private banks to lend more money than they
| were doing at the time (you'll hear a lot of hand-wringing about
| the 0 lower bound of interest rates, despite some interesting
| outcomes from negative interest rates in other countries). In
| order to do _something_ , the Fed decided to just straight up buy
| US Treasuries (something Japan had pioneered before; they also
| buy Mortgage-backed Securities, but don't worry about that right
| now).
|
| This decision (known as Quantitative Easing because economists
| love to pretend like they're scientists) has the net effect of
| making the Treasuries more expensive, and their interest rates
| lower. This is because Treasuries are sold with a fixed coupon
| rate (i.e. I'll give the owner of this Treasury $5/month) and a
| floating face value (i.e. I'll pay a variable amount of money
| depending on current risk conditions to own the Treasury that
| pays me $5/month risk-fee). When the risk-free interest rate is
| low, people tend to look to riskier places to generate yield, and
| therefore lend money more liberally.
|
| This change is important because it went from the Fed influencing
| a relatively esoteric, bank-only interest rate to the Fed
| controlling the most important interest rate in the world (it's
| one of the most common baselines used for determining other
| interest rates).
|
| Long story short, The Fed wants that interest rate to go back up,
| so what are they doing? They are _no longer buying new Treasuries
| to replace their existing Treasuries that reach maturity, to the
| tune of $90bn per month_
|
| Is that _removing liquidity_? Not really, it 's just decreasing
| the active injection of liquidity that the Fed has been doing for
| the past 15 years.
|
| Does the nominal amount of money on the Fed's balance sheet
| matter/should we strive to bring it to $0? Unclear - what does it
| even mean for the US government to own its own debt? As long as
| markets don't care (they seem to not care right now out of
| convenience) then it's all fine, I guess?
|
| Will the Fed ever actively sell its Treasury holdings? Probably
| not, because they are happy with the tense equilibrium I
| mentioned above and they don't want to risk breaking that.
|
| What's the best KPI to watch? As long as new Treasuries sell (at
| auction) at around the Fed's desired interest rate, this is a
| non-problem and we can sort of ignore it. As soon as the Treasury
| market breaks (A lot of varying opinions here), then this is the
| world's biggest problem ever and we will look back at how foolish
| we were (just unclear if that will ever happen).
| wbsss4412 wrote:
| > Is that removing liquidity? Not really, it's just decreasing
| the active injection of liquidity that the Fed has been doing
| for the past 15 years.
|
| This is a pretty ideologically based statement. The fed is
| quite literally removing liquidity from the system. They aren't
| "actively" adding any liquidity and haven't been for months.
|
| For context, yes it's helpful to keep in mind the build up of
| the balance sheet, but the spin here is overly politicized.
| RC_ITR wrote:
| >They aren't "actively" adding any liquidity and haven't been
| for months.
|
| Just so you know, in order to keep the balance constant, the
| Fed actively participates in the market to buy new Treasuries
| to replace those that have matured.
|
| I see no ideology in saying that buying bonds (even if it's
| to replace old ones) is active support.
|
| In fact, the Fed is still a _huge_ player in Treasuries
| markets even during QT.
| wbsss4412 wrote:
| I'm aware that is the case. If they weren't doing that,
| though, it would result in a massive uncontrolled level of
| tightening. I don't see how it's somehow a bad thing that
| they are being intentional about the draw down.
|
| If I were to buy a bond ETF, that fund would be doing the
| same thing on my behalf. I wouldn't be "buying" bonds just
| because the underlying product is maintaining a fixed asset
| level/ratio.
| RC_ITR wrote:
| >I'm aware that is the case. If they weren't doing that,
| though, it would result in a massive uncontrolled level
| of tightening.
|
| Yes, so they aren't 'removing liquidity' because they are
| still 'injecting liquidity' at literally every treasury
| auction (as they have been for 15 years). They are simply
| injecting _less_ liquidity than they have been, which is
| my entire point.
|
| >I don't see how it's somehow a bad thing that they are
| being intentional about the draw down.
|
| It's not a bad thing and I never said it was. If you want
| ideology, I think the Fed shouldn't even be doing QT and
| probably never should (I think inflation is largely
| unrelated to _this_ liquidity).
|
| >If I were to buy a bond ETF, that fund would be doing
| the same thing on my behalf. I wouldn't be "buying" bonds
| just because the underlying product is maintaining a
| fixed asset level/ratio.
|
| In literal terms, the government holds an auction for
| Treasury debt at various maturities. ~20 primary dealers
| bid on those Treasuries. Those ~20 primary dealers know
| exactly how much The Fed needs to buy from them. That
| influences their bids. If The Fed weren't buying from
| those dealers, they would bid for higher rates. In no way
| do those dealers consider the amount of debt that has
| reached maturity that month, they only care about new
| issuances.
|
| Isn't this pretty basic supply/demand stuff here? Are you
| also implying that demand for bond ETFs has no effect on
| the price of underlying bonds?
| wbsss4412 wrote:
| > Yes, so they aren't 'removing liquidity' because they
| are still 'injecting liquidity' at literally every
| treasury auction (as they have been for 15 years). They
| are simply injecting less liquidity than they have been,
| which is my entire point.
|
| Your point is myopically focused on the bond market (and
| realistically the mortgage backed securities market as
| well).
|
| The net amount of liquidity is going down. They are
| removing liquidity.
|
| If I'm in a sinking ship and frantically pulling out
| buckets of water, the ship is still sinking even though
| I'm removing water. The fact that the fed has to continue
| to make bond purchases is a technicality that is
| irrelevant to anyone outside of the trading industry, and
| has little net effect of the Marco economy.
|
| Like, when headlines come out saying "alphabet stock sell
| off on earning miss" do you tell everyone around you that
| _technically_ there was a buyer on the other side of
| every one of those transactions?
| RC_ITR wrote:
| >The net amount of liquidity is going down. They are
| removing liquidity.
|
| Yes, they _are actively injecting less liquidity than
| they were before_ which is my original point?
|
| Wouldn't _removing_ liquidity be _actually selling_
| holdings?
|
| EDIT: Maybe this helps - you're taking for granted that
| the US Treasury auctions an increasingly large amount of
| Treasuries to cover an increasingly large amount of debt,
| but The Fed doesn't create that debt, that's a separate
| phenomenon. If the government balanced its budget for a
| year, does that _create liquidity_?
| wbsss4412 wrote:
| > EDIT: Maybe this helps - you're taking for granted that
| the US Treasury auctions an increasingly large amount of
| Treasuries to cover an increasingly large amount of debt,
| but The Fed doesn't create that debt, that's a separate
| phenomenon. If the government balanced its budget for a
| year, does that create liquidity?
|
| Do you actually understand what liquidity is?
|
| Bonds are just one instrument the fed uses, the bond
| market isn't the end all be all of open market
| operations. As I noted earlier, the fed was previously
| injecting liquidity by buying bonds _and_ mortgages. What
| you're talking about is tangential.
|
| Liquidity is the amount of cash in the system relative
| the size of the market for assets. All else equal, adding
| or removing is the same as adding or removing cash.
| wbsss4412 wrote:
| The fed removes liquidity every time it receives a coupon
| payment or a bond matures (ie, it gets paid cash by the
| government). It could stop all open market operations and
| it would continue to remove liquidity from the system by
| virtue of that process. So, no, it doesn't need to sell
| any assets in order to remove liquidity from the system,
| it simply needs to have lower net outflows of cash than
| its inflows of cash. As the headline states, since mid
| April it's net outflows of cash have been $140 billion
| less than its inflows.
| RC_ITR wrote:
| Wait, it's really hard to follow you here.
|
| The Fed _reduces liquidity_ by receiving coupon payments?
| So then, unless it 's growing its balance sheet by the
| amount of those payments (i.e. returning that cash to
| market), it's _removing liquidity_?
|
| Interesting take, I like the moxy.
|
| EDIT: _You_ have QE /QT backwards. QE increases the money
| the Treasury sends to the Fed as coupon, which you said
| _removes liquidity_.
|
| My entire point was that _you_ are backwards in one of
| your two conflicting arguments.
| wbsss4412 wrote:
| > Quantitative easing (QE) is a monetary policy whereby a
| central bank purchases predetermined amounts of
| government bonds or other financial assets (e.g.,
| municipal bonds, corporate bonds, stocks, etc.) in order
| to inject money into the economy to expand economic
| activity.
|
| [0] https://en.wikipedia.org/wiki/Quantitative_easing?wpr
| ov=sfti...
| RC_ITR wrote:
| I can't reply to your many new comments (guess this is a
| flamewar lol), but
|
| >Liquidity is the amount of cash in the system relative
| the size of the market for assets. All else equal, adding
| or removing is the same as adding or removing cash.
|
| Citation needed there buddy. Like you're arguing that the
| Fed is hoovering up too much cash? Wouldn't QE be anti-
| liquidity since it's net result is more cash goes to the
| Fed and QT be pro-liquidity since the opposite happens?
|
| On this earth, liquidity is about transaction velocity,
| and The Fed taking transactions off the table (by being a
| guaranteed buyer at every auction) makes non-Fed
| transactions happen at lower prices. The end.
|
| Anyway, enjoy the end of this flamewar.
| wbsss4412 wrote:
| > Wouldn't QE be anti-liquidity since it's net result is
| more cash goes to the Fed and QT be pro-liquidity since
| the opposite happens?
|
| You have QE and QT backwards.
|
| QE => fed builds up it's balance sheet, it sends out
| cash.
|
| QT => fed reduces its balance sheet, it gets cash back.
|
| >On this earth, liquidity is about transaction velocity,
| and The Fed taking transactions off the table (by being a
| guaranteed buyer at every auction) makes non-Fed
| transactions happen at lower prices. The end.
|
| Transaction velocity matters but it's not everything.
| You're myopically looking at _one_ market, while the rest
| of us are talking about the systemic effects.
|
| Transaction volume follows from the supply and demand for
| money. If you remove money from the system, you remove
| liquidity.
|
| Look, you quoted a blatantly incorrect definition of
| QE/QT below. You clearly have no idea what you're talking
| about.
| RC_ITR wrote:
| You have QE/QT backwards. QE increases the money the
| Treasury sends to the Fed as coupon, which you said
| removes liquidity.
|
| My entire point was that you are backwards in one of your
| two conflicting arguments.
|
| EDIT: Maybe let's put it this way, the US pays off it's
| debt and no longer sends coupon payments to anyone. In
| your framework, that reduces 'liquidity.' But in _what
| market_ exactly? The "systemic" market?
| SilverBirch wrote:
| To be honest, I think you need to preface your comments with
| some caveat about absurd opinions you have, because you're
| trying to pass this off as authoritative but lots of this is
| just pure opinion. We're on a forum where if you posted a
| similar comment about an raspberry pi I'd take you literally as
| an expert, but this comment clearly contains a load of opinion
| that's not backed up by fact. I worry someone might mistake you
| for making a technical statement where it's clearly just a
| political statement.
| RC_ITR wrote:
| I'd love a list of the opinions you found so I can preface
| them, then.
| sheepybloke wrote:
| > Is that removing liquidity? Not really, it's just decreasing
| the active injection of liquidity that the Fed has been doing
| for the past 15 years.
|
| I like this line a lot because it shows that while we like to
| blame inflation and some of the issues we're having on the
| Fed's work in 2020, when in reality we have to go back to the
| Great Recession to understand the full impact of what's been
| going on. They've been trying to keep the markets happy for 15
| years by keeping interest rates low and so, never reverted some
| of the policies that would have helped when COVID hit the
| economy. So, they doubled down. Now, the chickens have come to
| roost and they need to reel back, and hopefully, the markets
| won't get spooked and it will all be good, as you say.
| rodionos wrote:
| Once the Fed funds rate gets closer to 5%, you'll see more
| pushback from politicians and media. What does the Fed do in
| this situation if it needs to keep tightening? It may choose to
| switch to smaller rate changes, or even go flat, and at the
| same time embark on Treasury sales, or at least, rebalancing
| along the curve. So either way, not a good time to be in bonds.
| RC_ITR wrote:
| Here's what's weird. Believe it or not, the Fed Funds Rate
| lags 10Y Treasuries and rarely goes above it [0]. I would
| even go as far to argue that's it's mainly a potemkin policy
| tool at this point, since our economy is so exposed to 10Y
| Treasuries, which have completely unrelated pricing dynamics.
|
| So in practical terms, if there is political pressure to
| lower the 10Y, The Fed will probably cut Fed Funds (doing
| nothing, hopefully dropping it as a policy tool going
| forward) and then everyone will kind of realize QE is the
| only current policy tool that actually works.
|
| But then what, people will be calling for more QE to make
| mortgage rates drop? I mean fine, but it does speed up the
| 'when does the market question the concept of the Fed owning
| the Treasury's debt' problem.
|
| [0] https://fred.stlouisfed.org/graph/fredgraph.png?g=TXsO
| cs702 wrote:
| _> Is that _ removing liquidity _? Not really..._
|
| I _disagree._
|
| The US Treasury must issue new treasury bonds every month with
| face value equal to (a) that of old treasury bonds that mature,
| plus (b) a bit more to fund the federal deficit.
|
| _Someone else must buy all those new bonds_ , because
| otherwise the US Treasury would not have sufficient funds to
| pay back the old ones as they mature.
|
| This means that someone else _must somehow find liquidity_ to
| buy all those new bonds.
|
| That someone else is (the private-sector parts of) _the
| financial system_. Who else would it be?
|
| All that liquidity will _leave_ the financial system 's hands.
| RC_ITR wrote:
| If I give you $100/month for 15 years and then give you $95
| this month, am I taking money from you?
| cs702 wrote:
| There's zero _giving_ involved.
|
| For years, the Fed has _purchased_ bonds, paid for with
| newly created liquidity, and now, as the bonds mature, the
| Fed is getting _paid back_ , removing liquidity from the
| financial system.
| RC_ITR wrote:
| >There's zero giving involved.
|
| Technically, the Fed _gave_ the Treasury cash in exchange
| for debt, no? And it was _giving_ the Treasury more in
| the past than it is now.
|
| To extend the metaphor, You (the treasury) have $100 in
| expenses (debt) that I used to pay (buy). Now, I (the
| Fed) pay you (The Treasury) $95 and you need to ask your
| friend (the financial markets) for the other $5.
|
| Sure, that's less than before, but _nowhere near_ what
| actual removing liquidity would look like: actively
| selling holdings in addition to not replenishing matured
| Treasuries (in the metaphor: asking you to pay me the
| debt you owe me /giving you a new expense).
| cs702 wrote:
| The Fed is not allowed to buy bonds directly from the US
| Treasury, let alone _give_ them anything (!?). See here:
|
| https://www.federalreserve.gov/faqs/money_12851.htm
|
| The Fed has been _buying_ bonds by issuing new liquidity,
| and will be getting _paid back_ , removing liquidity.
|
| This thread that you started is starting to feel... as if
| the purpose is no longer to find and agree on _facts_ ,
| so I will step away from it. This will be my last comment
| on it.
| RC_ITR wrote:
| You can see my earlier comment about the ~20 prime
| brokers who bid at auction, but boy howdy does this feel
| like splitting hairs. _Sure_ , the cash goes through
| intermediaries, and it's actually a huge source of
| economic rent/corruption that noone other than Song and
| Zhu seem to care about, but that doesn't change the
| ultimate flow of 'giving'.
|
| >In literal terms, the government holds an auction for
| Treasury debt at various maturities. ~20 primary dealers
| bid on those Treasuries. Those ~20 primary dealers know
| exactly how much The Fed needs to buy from them. That
| influences their bids. If The Fed weren't buying from
| those dealers, they would bid for higher rates. In no way
| do those dealers consider the amount of debt that has
| reached maturity that month, they only care about new
| issuances.
| boole1854 wrote:
| > Does the nominal amount of money on the Fed's balance sheet
| matter/should we strive to bring it to $0
|
| This speech by Chairman Powell is information about the Fed's
| current thinking on this question:
| https://www.federalreserve.gov/newsevents/speech/powell20190...
|
| In short, the Fed will not aim to return its balance sheet to
| the same size, relative to GDP, that it was before 2008. One
| reason is that the 2008 crisis revealed the importance of
| requiring major banks to keep reserve balances (and these
| reserve balances are liabilities on the Fed's balance sheet).
| There are also other technical reasons commented on in that
| speech.
| RC_ITR wrote:
| Well and that's the point a lot of people miss - that $9T
| isn't like $9T one-dollar bills.
|
| Essentially the government got to spend $9T "for free" (don't
| come at me inflation hawks) one time and this is the
| accounting convention that forces us to remember that
| happened. If the Fed just decided to mark those treasuries to
| 0 and not collect the interest, who is going to stop them?
|
| Things generally get very weird when you get to national-
| account level accounting for countries with reserve
| currencies.
| shuntress wrote:
| Thanks. This is actually really helpful.
|
| Obviously the US economy doesn't work like an individual's
| economy (as in, you can't just spend less than you earn and be
| OK) but it's really difficult to understand what the
| complications actually are and posts like this help a lot.
| umarniz wrote:
| I had to search what this graph actually meant and this post gave
| some context:
| https://www.americanactionforum.org/insight/tracker-the-fede...
| purpleblue wrote:
| That's not very much.
| sheeshkebab wrote:
| Another $4.8t to go... all this cash went into pumping real
| estate, big tech and crypto. I guess real estate is next after
| stock market completely rolls over, together with crypto crap.
| meltyness wrote:
| "Mechanically, the Fed will reduce its securities holdings by not
| reinvesting the funds it receives from maturing securities[...],
| which will reduce [...] the size of its balance sheet."
|
| https://www.stlouisfed.org/open-vault/2022/may/how-will-fed-...
| RC_ITR wrote:
| I wish more people would actually read this kind of stuff
| before commenting what they think is happening.
|
| Thank you.
| mandeepj wrote:
| To tackle inflation, will it be fair of US government to ask
| money back in small chunks from people who got it during Covid
| lock-downs?
| okwubodu wrote:
| It was their money in the first place.
| ryan93 wrote:
| Doesnt matter if it wasnt returned proportionally.
| Invictus0 wrote:
| Lol, as if the government has any idea of who it gave money to
| datalopers wrote:
| They've already lost most of it on cryptocurrencies, online
| gambling, and meme stocks
| [deleted]
| ThunderSizzle wrote:
| Not that fair, considering the US government closed down
| businesses during lockdowns.
|
| If the government did close anything in particular, I'd say the
| answer would be yes otherwise.
| ajmurmann wrote:
| Like having kept the business loans they gave out as actual
| loans rather than forgiving them?
| goldenchrome wrote:
| They've been doing that every year already
| JumpCrisscross wrote:
| > _will it be fair of US government to ask money back in small
| chunks from people who got it during Covid lock-downs?_
|
| This is taxation. Raising taxes reduces inflation in the same
| way fiscal spending prods it.
| chordalkeyboard wrote:
| well it only reduces inflation in aggregate if the money
| collected from taxation is destroyed and not spent.
| jdkee wrote:
| Long way to go to get to pre-pandemic levels.
| boringg wrote:
| This in combination with rate hikes are why equity markets are
| going to be hurting for a good amount of time.
| paulpauper wrote:
| hard to say. the market did well in 2019 despite liquidity
| being puled out.
| bredren wrote:
| This makes it sound like equity markets were healthy in advance
| of this.
| djbusby wrote:
| How do they actually withdraw the money (is it money, or is
| "liquidity" something different than M1).
| wbsss4412 wrote:
| "Liquidity" literally means the ease with which assets can be
| converted into cash. In the context above it's saying they have
| removed cash from the system, in specific reference to the M1
| money supply.
|
| It's one of those words that gets used in a bunch of different
| contexts without a consistent meaning, unfortunately.
| kuczmama wrote:
| They sell bonds. When they sell bonds, USD is converted into
| bonds. This has the effect of removing cash from a bank account
| and replacing it with an IOU from the government.
|
| The actual account balance stays the same, but where before you
| had cash, now you have government backed bonds.
|
| This is what they call "quantitative tightening".
| eximius wrote:
| but those get turned back into cash at maturity?
| kuczmama wrote:
| Yeah they do. Actually they get turned into cash after each
| coupon payment and at maturity. But it takes time (as long
| as 30 years for some bonds) to turn the bonds back into
| cash. So this has the effect of taking liquidity out of the
| economy, while not making anyone any poorer.
|
| When you take out liquidity, people's money are now locked
| in bonds and they can't buy anything else with that money
| unless they sell the bond. So this has the effect of
| reducing demand for other financial assets like stocks,
| real estates, cryptocurrency, etc in the short term.
|
| The hope is that in the long run, the economy will grow
| enough to be able to support the eventual increase in the
| money as the bonds mature.
| [deleted]
| gfd wrote:
| I've never bought a bond in my life (I didn't even know what
| they were) until someone told me they are currently offering
| 9.62% risk free returns! There's a very low limit on how much
| you can buy per year but this seems like a no brainer to me.
|
| https://www.treasurydirect.gov/indiv/research/indepth/ibonds.
| ..
| Invictus0 wrote:
| Might not shock you to learn that the treasury has less
| than stellar customer service. I signed up to buy some I
| bonds and was told they couldn't verify my information (???
| -- I gave them my SSN) and I would have to mail them a
| letter to proceed with signup.
| giobox wrote:
| For sure, but I wouldn't recommend someone ignore things
| like Treasury I Bonds on account of the shitty
| website/customer service - especially at current rate
| above 9 percent. I had similar issues, they do resolve
| them if you get in touch, albeit it took a few weeks to
| authorize my account.
| SketchySeaBeast wrote:
| That rate is only for 6 months:
|
| "That rate is applied to the 6 months after the purchase is
| made. For example, if you buy an I bond on July 1, 2022,
| the 9.62% would be applied through December 31, 2022."
|
| And here[1]:
|
| "What's the interest rate on an I bond you sell today?
|
| For the first six months you own it, the Series I bond we
| sell from May 2022 through October 2022 earns interest at
| an annual rate of 9.62 percent. A new rate will be set
| every six months based on this bond's fixed rate (0.00
| percent) and on inflation."
|
| I'm not sure what the next return is - either way given the
| current mark that's excellent, just important to know that
| there is a definite time limit on that interest rate.
|
| [1] https://www.treasurydirect.gov/indiv/research/indepth/i
| bonds...
| HellzStormer wrote:
| Yep, and if you cash it in less than 5 years, you lose
| the last 3 months of interests.
| ur-whale wrote:
| With an inflation at 8%, that's ... I'll let you do the
| math.
| spywaregorilla wrote:
| That is the point of these bonds. They're indexed to
| inflation. Which is great when inflation is high.
| thehappypm wrote:
| Whats a better alternative? Every other investment seems
| negative right now..
| SketchySeaBeast wrote:
| that's ... a lot better than investing in the S&P right
| now.
| DocTomoe wrote:
| No such thing as a risk-free investment, especially not
| high-interest government bonds.
|
| Just ask Greece, ca. 2010.
| staticman2 wrote:
| A inflation linked government bond is pretty much by
| definition risk free.
| gamegoblin wrote:
| Greece does not print its own currency, the US does.
| Greece uses the Euro, which is printed by the ECB, which
| is not controlled by the Greek government. The US
| government can always pay its debts. Doing so may cause
| inflation, so the real return on that investment may not
| be great, but the nominal return is essentially risk-
| free.
|
| Greece's relationship to the Euro is more akin to an
| individual US state's relationship to the Dollar. No US
| state has Greek levels of debt. Greece's debt-to-GDP
| ratio was up to 180%. Most US states run at a ratio
| closer to 5-15%.
| wbsss4412 wrote:
| To add, they sell mortgage backed securities too.
| RC_ITR wrote:
| > They sell bonds.
|
| To be clear, they are not selling bonds. They are simply not
| buying new bonds to replenish those that reach maturity.
| cs702 wrote:
| > They sell bonds.
|
| Yes. Or they let the bonds mature and don't buy replacement
| treasury and agency-sponsored bonds. Meanwhile, the US
| treasury has to issue new bonds to be able to repay the bonds
| that mature every month.
|
| Others (meaning the private sector) will have to buy all
| those bonds.
| whatever1 wrote:
| Correct. The higher the interest rate the bonds offer the
| more likely someone will buy them.
| endisneigh wrote:
| I've wondered - wouldn't it be simpler to raise taxes vs raising
| interest rates?
| fennecfoxen wrote:
| In principle, fiscal policy (taxing, spending) can substitute
| with monetary policy to some extent, and achieve many of the
| same goals, yes! But you'd be hard-pressed to find an economist
| who describes either recent or proposed fiscal policies of the
| Biden administration as something that's great at being
| remarkably anti-inflationary. Student loan forgiveness, for
| instance -- some may say it's a worthy policy, but it's
| definitely freeing up money to be used on other things, and
| that's something that increases price pressures. I'm not sure
| it's on the table.
|
| There's other disadvantages in that the impact of fiscal policy
| is usually somewhat on the slow side, leaving a risk that your
| fiscal tightening hits as you enter the recession or your
| fiscal stimulus hits as the economy is already booming after
| the recession. So it's not quite that simple. Take the case of
| the Inflation Reduction Act, for instance; it purports to
| reduce inflation by "making a historic down payment on the
| deficit". Let's take this at face value just to limit any
| possibility for argument: maybe that'll help!!! but ... if you
| look closely, this is actually kind of spread out over the next
| ten years, while we have real inflation _now_. Does it have an
| impact? Maybe. Does it have an impact today? Probably not as
| strong as one would like.
| bhaney wrote:
| Simpler? Definitely not.
|
| Interest rates are controlled by the Federal Reserve, which is
| an independent entity that can change interest rates without
| needing any kind of approval from the federal government. It's
| very simple for them to actually implement once the decision is
| made.
|
| Taxes need to be voted in by citizens, or more accurately, the
| representatives of the citizens. Citizens do not tend to enjoy
| enforcing more taxes on themselves, and representatives tend to
| want to get re-elected, so they have incentive to avoid raising
| taxes and upsetting their constituency, even if they know it's
| a good idea in the long-run.
| peppertree wrote:
| I find it interesting the Feds is an independent branch run
| by unelected officials. Because your average voters are
| idiots that can't be trusted with important levers of
| society. If you look at Turkey it makes perfect sense.
| ksherlock wrote:
| On one hand, there are 7 federal reserve board governors.
| They're appointed for 14 year terms and don't have to worry
| about being re-elected. They are, generally speaking,
| economists and spend their time thinking about money.
|
| On the other hand, there are 535 members of congress. They're
| elected to 2 or 6 year terms and do need to worry about being
| re-elected. They are, generally speaking, lawyers and career
| politicians and spend their time thinking about how to fuck
| over the other party.
|
| Now, which is simpler?
| ceejayoz wrote:
| Sure, if the Dems had like an 80% supermajority in both parts
| of Congress. Republicans tend to be universally opposed, and
| swing Dems typically won't touch the idea either.
| exabrial wrote:
| No. We stop financing the elite 1%'s lifestyles with tax money
| is the only sensible out.
| endisneigh wrote:
| You could tax the lifestyles and elite in question no?
| adra wrote:
| Nope, the "elite" will just pick up their money in trusts
| and corporations, then constantly take out loans against
| their equity and take out enough from their shelters to pay
| the interest.. because the interest is less than the taxes
| they dodge, they come out ahead. Maybe if you significantly
| increased consumption taxes you'd have a chance, but the
| "elites" will just buy their goods in another country. Net
| result, you're boned.
| exabrial wrote:
| Omg. When someone has a spending problem, literally nobody
| says "OH, go make more money!", we tell them to cull their
| bad habits. Raising taxes has _never_ balanced the budget.
| kmeisthax wrote:
| No, but taxing is a good way to pull dollars out of
| circulation and destroy demand. In fact, it's probably a
| better lever to pull than the Fed funds rate.
|
| The spending problem in question is deliberately
| supported by voters, who oppose lowering spending _or_
| raising taxes. Running the government on a deficit lets
| you simulate the benefits of economic growth without all
| that pesky _growing_.
| aaronbrethorst wrote:
| Raising taxes goes through the Senate, where you have 51
| Senators who are generally opposed to any tax rate hike, even
| (especially) on the plutocrat class.
| bigyikes wrote:
| Fiscal policy is not in the Fed's charter. They are independent
| from the rest of the federal government and only control
| monetary policy. Adjusting taxes isn't a tool in their toolbox.
|
| As for congress, raising taxes is wildly unpopular with a large
| portion of the country. It takes a lot more political capital
| to make changes there.
| alberth wrote:
| It's amazing that the USD is the strongest it's been in ~20
| years; yet it's fighting inflation and has the largest national
| debt out of any country in the world ... is this simply a
| circumstance that the US is "less bad off" than the rest of the
| world?
|
| Note: I'm no economist, so if I'm inaccurate in my statements -
| please forgive.
| SilverBirch wrote:
| Well, let's compare it to other countries right. (and this is
| just my feeling). Europe can't heat their homes this winter
| because of Russia's war on eastern Europe. Russia is fucked
| also, becasue they need to sell their oil at a discount to
| whoever will take it to fund their war. This has also caused a
| massive spike in food costs in emerging markets. Turns out
| Ukrainian crops were important. Meanwhile, China is struggling
| with its first real recession because of overleverage with
| Evergrande and the same supply chain issues that face the US.
| So yes, things are going badly in the US. But there are bigger
| problems elsewhere and in situations where things go crazy
| people flee to safety. Which at the moment seems to be the USD.
| wbsss4412 wrote:
| > yet it's fighting inflation and has the largest national debt
| out of any country in the world ... is this simply a
| circumstance that the US is "less bad off" than the rest of the
| world?
|
| Debt is usually benchmarked against GDP for a reason, by that
| metric the US doesn't have the highest debt level, it also
| doesn't have the highest level of inflation.
|
| The USD is also the currency of basically all international
| trade and settlements, it's value is determined by external
| factors to a significant degree, not only on the US economy
| itself.
| danielmarkbruce wrote:
| Total US household assets are around $150 trillion.
|
| If one rich uncle starts selling all his bonds it's not that big
| of a deal. It's not nothing, but it isn't some train wreck
| waiting to happen like some folks make out.
| it_citizen wrote:
| How much of the inflation is due to money injection? How much is
| due to the war, the energy crisis and post covid supply chain
| problems?
| rdsubhas wrote:
| Just doing rough back of the envelope math.
|
| Around 6T has been injected since the pandemic.
|
| It's taken 5 months to withdraw 140B.
|
| If they keep going at this rate, constantly down without
| flattening or going up, it will take 214 months or 18 years to go
| back to 2020 levels.
|
| Ignoring that the 2020 levels themselves were hyper injected from
| 1T to 4T by the 2009 crisis.
| JumpCrisscross wrote:
| > _they keep going at this rate_
|
| The run-down rate more than doubled in August [1]. Current
| estimates to optimal balance sheet are about 4 to 5 years [2].
|
| [1]
| https://www.federalreserve.gov/newsevents/pressreleases/mone...
|
| [2]
| https://advisors.vanguard.com/insights/article/thefedsplanto...
| divbzero wrote:
| The balance sheet shrunk from $8,874,620 million on August 3
| to $8,822,401 million on September 7, a rate of about $50
| billion per month or $600 billion per year. If continued,
| this rate of decrease would bring the balance sheet from $8.5
| trillion down to $5.5 trillion by 2027, within range of the
| "optimal balance sheet" described in the Vanguard report.
| cm2187 wrote:
| and the ECB seems to be re-growing its balance sheet:
|
| https://tradingeconomics.com/euro-area/central-bank-balance-...
| Retric wrote:
| It's not a linear drop, the removed 20B from mid April to mid
| June. Then another 120B in under 3 months.
| viscanti wrote:
| Wasn't the 120B during a time when the FED was in a battle
| against inflation and making aggressive moves to raise rates?
| Are we to expect that it's the new normal for many years?
| onlyrealcuzzo wrote:
| Money can get funnier, but it can never get less funny.
| asdajksah2123 wrote:
| The economy has also grown drastically since then. The dollar
| has also become much stronger relative to nearly every other
| currency since then.
|
| It doesn't appear that the Fed needs to wind down much, if any,
| of that liquidity at all, since it seems it's been absorbed
| perfectly by the global economy.
|
| What we are seeing is the Fed deliberately causing the economy
| to contract below its capabilities in an attempt to slow down
| the growth of prices, which is NOT caused by monetary reasons,
| but since the Fed only has control over monetary levers that's
| what they're using. Classic case of everything looking like a
| nail if all you have is a hammer.
|
| If energy prices go back down to more "normal" levels, I
| suspect the Fed will be forced to inject more money into the
| system again, to rev up the US economy, and weaken the hyper
| strong dollar to protect people in developing countries from
| starving.
| onlyrealcuzzo wrote:
| > I suspect the Fed will be forced to inject more money into
| the system again, to rev up the US economy, and weaken the
| hyper strong dollar to protect people in developing countries
| from starving.
|
| Although a noble cause, the Fed's goal isn't to protect
| people in developing countries from starving. I don't see why
| this would impact their decisions at all.
|
| Foreign countries defaulting because of the difference in
| currency valuations could cause the US economy to go into a
| recession - which is something the Fed does care about...
| wstuartcl wrote:
| I think you are conflating a stronger dollar against the
| wrong cause. The strong dollar is here because of the
| interest rate hikes and global market insecurities -- it is
| lower risk and higher base interest to plant yourself on USD
| right now. Its the side effect for trying to temper inflation
| but not directly related to the buydown of Fed monies in
| market nor is it related to GDP growth at all (we are flat).
| crisdux wrote:
| > The economy has also grown drastically since then.
|
| No it hasn't.
|
| Real GDP:
|
| Q4 2019 19.20 Trillion
|
| Q2 2022 19.69 Trillion
|
| > It doesn't appear that the Fed needs to wind down much, if
| any, of that liquidity at all, since it seems it's been
| absorbed perfectly by the global economy.
|
| This comment is extremely misleading. For starters, I don't
| know how you can say that. It's obvious it wasn't absorbed
| perfectly because we experienced bubbles in many markets. And
| those bubbles have caused harm to large groups of people. For
| example; crypto, equities, housing, etc.
|
| Let's just dive into housing. We have a system that has
| disproportionately enriched incumbent homeowners at the
| expense of new entrants. 2 years ago: 30-yr mortgage rate was
| 2.87% & median existing home price in the US was $310k.
| Today: 30-yr mortgage rate is 6.02% & median home price is
| $390k. Increase in monthly payments from $1,029 to $1,872.
| This is regressive and has exacerbated inequality. The
| magnitude of this will be lasting. Real wages have not kept
| pace.
|
| I also suspect the fed will reverse course but that's because
| the American (and the rest of the American led global) system
| now expect it. Our markets are dysfunctional and depend on
| this centralized control. It would take too much time and
| pain to return markets to their natural pricing.
| ponow wrote:
| What would it take to have "natural pricing"? Short of
| radical proposals like going back to the gold standard or
| switching to crypto, what way could the Fed operate that
| would allow "natural pricing"? What if the Fed targeted 0%
| inflation, instead of 2%? I realize that inflation has many
| definitions, but I got the impression that they're
| reasonably correlated over long periods of time. With a
| zero-percent inflation target, what consequences would we
| expect? I think we would need higher interest rates on
| average, for starters. This would temper the housing
| problem. It would also reduce total debt, and total debt
| increases are associated with financial instability.
| soperj wrote:
| > since it seems it's been absorbed perfectly by the global
| economy.
|
| So that's why we're getting 8-9% inflation rates? Because of
| the perfect absorption?
| behaveEc0n00 wrote:
| Greed seems to explain it easily enough.
|
| The macro-economy is solely for the wealthy and when they
| need a billion or more to see a return on a billion or
| more, shrinkflation and price increases go up; hard to make
| a billion back on long time scales at 2010 prices.
|
| I'm not saying they intentionally operate on that
| philosophy. I'm saying reliance on data trends means they
| prioritize responding to data regardless of the
| externalities to the masses.
|
| Only the rich can afford assets so assets are priced for
| the rich.
| gamegoblin wrote:
| Are periods of low inflation thus caused by elites being
| less greedy?
| behaveEc0n00 wrote:
| Yes. Powell is on record saying he wants the public to
| save and not trade on the market. He wants bonds to go
| up. He wants salaries to stop going up. If everyone is
| flush in assets from having cash to spend it fucks up the
| game for establishment elites.
|
| He's keeping the public out of the way of elites. Banks
| are raising savings account rates to keep cash stashed.
| VCs are scaling back. Prices on say, homes will crash,
| rates will be too high for average people, elites build
| property management portfolios and expand their rent
| seeking.
|
| The recent era of spread the wealth has been put on pause
| while the asset class shores up public agency that was
| getting away from it by creating too many elites. If
| everyone is an elite the current elites have no power.
| That's the simple game they're playing, leveraging
| technical indirection to obfuscate.
| alexb_ wrote:
| That's not how any of this works. Yes, the fed sometimes
| wants the economy to slow. This is not because of some
| global conspiracy to make poor people poor, it's because
| if they don't now they are putting it off to be much,
| much worse in the future. It's letting off steam so you
| don't explode. Interest rates rise to try and combat
| inflation because if you don't it leaves people starving.
|
| Rates should have gone up years ago, but a stubborn fed
| kept putting it off (and COVID didn't help either). The
| Fed does not benefit from everyone being poor. And I'm
| someone who thinks cynically all the time, check my post
| history, but this is just uninformed.
| behaveEc0n00 wrote:
| Even Powell has said they are realizing how little they
| know about how inflation "works".
|
| Claiming I am uninformed because I don't recite the
| spoken traditions that even the expert in charge admits
| to not fully understanding is just regurgitating memes
| from memory; you don't come off well informed, but like a
| skipping record.
|
| They don't have an incentive to NOT keep people poor
| either. They don't really care since they're going ahead
| anyway with policy they admit will hurt households; deny
| it again, please. I need a laugh.
|
| The outcome will be one of making cars and homes harder
| for poorer people to buy; Powell admitted that today and
| at every other rate hike. He's testing "what the market
| will bear".
|
| Human biology rules us, not social principles hashed out
| on paper. See my comment history. The result will be
| clear; haves will be able to afford buying up assets as
| prices come down. Have nots will be priced out.
|
| Don't forget too our Congress refuses to deviate from our
| social history. The Senate was described by Madison as a
| firewall to protect the opulent minority from the
| majority. You can carry on that's "not how it works" all
| you want. But "on the ground" the result is clear.
| arcticbull wrote:
| Inflation is not the change in size of the money supply.
|
| Inflation the broad-based change of purchasing power of the
| dollar by proxy of a basket of goods and services. This is
| a function of many, many things - cultural norms, commodity
| prices, labor supply, fiscal policy, supply chain
| efficiency, interest rates and yes, to a degree, monetary
| base.
| jtbayly wrote:
| It's complicated, therefore supply doesn't matter for
| money, only demand?
|
| I think you'll need to do a better job convincing me than
| that.
| oldgradstudent wrote:
| > So that's why we're getting 8-9% inflation rates? Because
| of the perfect absorption?
|
| Not to mention the massive asset price inflation.
| belltaco wrote:
| Part of it is oil and gas supply going down because of war
| and since producing anything requires energy, prices are
| going to go up regardless of the money supply.
| hutzlibu wrote:
| Yeah but it does not look like the war is going away
| anytime soon. In case you missed it, russia partly
| mobilised today.
|
| So parent seems right refuting this claim:
|
| > since it seems it's been absorbed perfectly by the
| global economy.
| slowhand09 wrote:
| Uh no. Oil and gas supply went down due to presidential
| mandates. Biden's "pause" on federal oil and gas leasing
| and drilling permits. And any new permits that might be
| approved on public lands had royalties increased from
| 12.5% to 18.75%. A 6.25% increase on production.
| soperj wrote:
| Inflation was 8.5% before the war started, it's now at
| 8.3%. I don't think your premise holds.
| JackFr wrote:
| > which is NOT caused by monetary reasons
|
| You simply cannot say that with any certainty. A rise in
| price level is always precipitated by too much money chasing
| too few goods. No one would argue that global energy and
| wheat prices are a supply side shock, but to say that a
| stimulus package of unprecedented size injected into a
| largely healthy economy has no effect on prices is ludicrous.
| ecommerceguy wrote:
| You say "relative to nearly every other currency since then",
| I say "race to the bottom". To each their own.
| colinmhayes wrote:
| Having a strong currency isn't necessarily a good thing. It
| makes it much harder to export goods and services.
| baremetal wrote:
| What does america export? Agricultural products. People
| have to eat. Agricultural products have pricing power,
| especially in the current global environment.
|
| Food, beverage and feed: $133 billion. ... Crude oil,
| fuel and other petroleum products: $109 billion. ...
| Civilian aircraft and aircraft engines: $99 billion. ...
| Auto parts, engines and car tires: $86 billion. ...
| Industrial machines: $57 billion.
| NovemberWhiskey wrote:
| Services: ~$700 billion.
| baremetal wrote:
| yeah services are gonna take a hit.
| gz5 wrote:
| The 140B you cite is mainly the Fed buying bonds from Treasury
| (indirectly)? Other than the other large buyers/sellers (e.g.
| other countries), what else materially creates up or down
| pressure on the rates (I know they are headed back up but they
| are still on the low side, historically)?
|
| Added (indirectly) to reflect comments below - tks.
| JumpCrisscross wrote:
| > _140B you cite is mainly the Fed buying bonds from
| Treasury?_
|
| The Fed isn't allowed to buy bonds from the Treasury [1]. The
| $140bn refers to bonds the Fed is letting mature without
| reinvesting the proceeds. That leads to fewer dollars chasing
| Treasuries, which reduces their price, which raises rates.
|
| [1] https://www.federalreserve.gov/faqs/money_12851.htm
| egberts1 wrote:
| The Fed isn't allowed to buy bonds from the Treasury [1]
| ... directly.
|
| You forgot the word "directly".
|
| Feds can buy back in "open-market".
| nairboon wrote:
| The Treasury auctions the bonds off to the primary dealers.
|
| The primary dealers sell the bonds to the Fed.
|
| At the end, the Fed has bought boatloads of Treasury bonds,
| but not from the Treasury!
| marcosdumay wrote:
| As a rule, the economy should react to the rate of change of
| the money supply, not to any absolute value.
|
| I do believe the US is in one of those moments where this isn't
| true, there is a mountain of money moving from a small niche
| into the main market, and the rate of this movement will
| determine what happens, not the change in total money supply.
| But even then, the size of the 2020 supply is irrelevant.
| mancerayder wrote:
| A lot of that injection ends up in the Eurodollar system, a
| reference to US dollars outside of the control of the U.S. They
| estimate up to 70 percent of U.S. dollar volume is in
| Eurodollars.
|
| There's a fascinating PDF from 2020 from Rabobank research desk
| on the topic. I have it on my system but they took down the
| link to it.
|
| Money's never printed anyway, it's all accounting - it starts
| with treasuries, and then those become collateral on which the
| highly complicated financial system on the world chains one
| debt instrument to another.
| riffic wrote:
| What was the 2009 crisis though? was that your run-of-the-mill
| recession (all business cycles have crests and valleys!) or was
| 2009 something different?
|
| Does _anyone_ operate under the assumption another recession
| (maybe even two or three) will occur in the next 10-20 years
| with 100% certainty and like, prepare for those rainy days?
| xapata wrote:
| > anyone
|
| Yes, it's almost certain that _someone_ does. From your
| comment, it seems like you do.
| avg_dev wrote:
| Anyone care to explain the significance of this? Ideally by
| stating your biases upfront :)
| dereg wrote:
| It basically means that the Federal Reserve stopped purchasing
| US Treasuries and agency mortgage backed securities. These
| assets are now rolling off their balance sheet as they reach
| maturity.
| yieldcrv wrote:
| you have to read between the lines: they didn't stop
| purchases only decreased them, they just let MORE mature than
| they purchase. And they also retain the option to outright
| sell some things that aren't matured yet, but they are not
| typically selling right now.
|
| beforehand, they would also reinvest all proceeds back into
| more purchases. now theyve limited that too.
| headbee wrote:
| After the Federal Reserve adds money to the economy, they
| usually want to take some of it back out. They take money out
| either by selling bonds or through taxes. The goal of removing
| money from the economy is sometimes to control inflation, but
| it's debated whether "printing money" actually affects
| inflation.
| missedthecue wrote:
| _" but it's debated whether "printing money" actually affects
| inflation"_
|
| ...yet no one, not even MMTers will advocate for unlimited
| printing. Curious.
| usrnm wrote:
| > it's debated whether "printing money" actually affects
| inflation
|
| The fed "printed" a shitton of money during Covid, dismissed
| all inflation concerns, and now, two years later, we're
| facing record inflation. I'd say there is a good chance that
| it does in fact affect inflation
| lesuorac wrote:
| Even a broken clock can get the time correct.
|
| Happy to see an article or w/e from you in 2020 correctly
| predicting the actual inflation and when it was going to
| occur. Saying everytime the fed does something that it'll
| cause inflation and then waiting years to say "Ha told you
| so!" is not impressive and not even p-hacking since you
| don't even have a p variable.
| mwint wrote:
| Is there any evidence the other way? I know, proving a
| negative, but I'd argue the null hypothesis here is
| "pumping money into the economy causes the economy to
| have more money"
| [deleted]
| shock-value wrote:
| Are you implying that it's impossible to draw such a
| conclusions from particular events such as those of 2020?
| Or that an increase in the size of money supply does not
| promote price inflation, all else equal?
|
| Don't think there is much credible evidence or opinion
| regarding the latter.
| lesuorac wrote:
| > all else equal?
|
| Reality is never all else equal.
|
| ---
|
| > Are you implying that it's impossible to draw such a
| conclusions from particular events such as those of 2020?
|
| That's not my claim at all. In fact I've invited the
| person to link me to their article explaining their
| analysis of 2020 and why it would lead to inflation in
| 2022. My point is strictly that people always claim that
| X is going to cause inflation and then just wait until
| inflation occurs to say "Aha, X does cause inflation"
| while doing 0 analysis to show that it was X as opposed
| to literally any other reason.
| shock-value wrote:
| > Reality is never all else equal.
|
| Agreed, but that's not really relevant to the discussion.
|
| > My point is strictly that people always claim that X is
| going to cause inflation and then just wait until
| inflation occurs to say "Aha, X does cause inflation"
| while doing 0 analysis to show that it was X as opposed
| to literally any other reason.
|
| But we are talking about the money supply. Prices are
| measured in units of money. You are suggesting that there
| is not a reason to think that changes in the size of the
| money supply influence price inflation. That makes no
| sense. Unless that additional money is just being
| systematically hoarded which seems unlikely in the long
| run.
|
| Put another way, a mismatch between the money supply and
| the demand for money (for use as a medium of exchange) is
| essentially what price inflation _is_ , almost by
| definition. So whatever the underlying "cause" of
| inflation, it's also always fair to say that the money
| supply was or became too large to keep it in check.
| colinmhayes wrote:
| The empirical evidence that money supply increases don't
| necessarily cause infaltion is
| https://fred.stlouisfed.org/series/M2SL from 2009 to
| 2019. Money supply doubled and inflation was non-
| existent. Obviously this is an incredibly complex topic,
| but there was at least some reason to believe inflation
| wouldn't be as high as it has been. There are also many
| reasons beside money supply inflation for the rise in
| price inflation.
| shock-value wrote:
| The key phrase is of course "all else equal". A lot was
| going on in that decade that could (and is) argued to
| have been an opposing deflationary force. Worldwide
| demographics and productivity improvements, in
| particular. (On a separate note, much of that is or will
| be slowing/reversing in the coming years.)
|
| To argue that an increase in money supply wouldn't lead
| to price inflation (again, all else equal) implies that
| the difference would just be hoarded indefinitely rather
| than used to buy anything, which seems unlikely just on
| the face of it.
| colinmhayes wrote:
| Sure, but all else wasn't equal during covid, so I'm not
| sure that's a fair addendum.
| shock-value wrote:
| I'm just arguing against this general idea that "increase
| in money supply doesn't cause price inflation". Which
| doesn't even really make sense because prices are
| measured in units of money. But the further implication,
| that Fed policy has no impact on prices, is just wrong to
| me and reflects some kind of misunderstanding.
| smileysteve wrote:
| But it should be possible for the fed to react to states
| opening, paycheck protection infusions, unemployment
| boosts, and stimulus checks.
|
| Imo, once us states began reopening the fed should have
| carefully moderated their equity and qe buys maybe even
| selling positions they opened in April 2020 as early as
| July 2020. Combine that with vaccine timing around May
| 2021 where a single 50bps change could have eased in.
| nomel wrote:
| I know nothing of the economy, but I was pretty convinced
| by this: https://www.longtermtrends.net/m2-money-supply-
| vs-inflation/
|
| For most significant spikes, there's a two year delay to
| a spike in inflation. 2009 and 2012 being a clear
| violation of that observation.
| lesuorac wrote:
| I'm not sure how that graph convinced you of anything, it
| looks mostly like two random lines. Would be much nicer
| if there was some equation that correlated the two.
|
| It does look like there are only 3 scenarios ('74, '80,
| '22) of a spike in m2 preceding a spike in inflation. But
| the m2 spike in '22 is so much larger (~2x) than '74 and
| '80 and the inflation spike is so much less (~0.7x) so
| the correlation of those variables based on those 3
| samples seems poor.
|
| But there's also '61, '67, '83, '01, '09, '11 where there
| was solid m2 growth or a spike and no inflation.
| influx wrote:
| What's the argument that it doesn't affect inflation? If
| the feds printed infinity dollars, surely each dollar
| would become less as it approached infinity? Otherwise,
| we should just do that and give everyone money?
| criddell wrote:
| I think you are asking about modern monetary theory. If
| you google that term you might find what you are looking
| for.
| influx wrote:
| Thanks, this was exactly the term I was looking for, will
| read up!
| thehappypm wrote:
| MMT has substantial critics
| jhobag wrote:
| the subtext here, after they kept insisting that inflation
| is transitory and that we are not in a recession/soft
| landing messaging, is that they dont want to be seen as
| tightening into a downturn
| [deleted]
| whatever1 wrote:
| In Europe we did not print (that much) money and still got
| inflation.
|
| In fact, the countries that use the same euro currently
| posted different inflation rates. In your economic model we
| should have evenly distributed inflation.
|
| So there you go.
| chordalkeyboard wrote:
| https://en.wikipedia.org/wiki/Richard_Cantillon#Monetary_
| the...
|
| > the countries that use the same euro currently posted
| different inflation rates.
|
| this is expected.
|
| > In your economic model we should have evenly
| distributed inflation.
|
| no one expects inflation to occur uniformly. its well
| understood that one of the prime distortionary factors
| that result from money printing is that the price level
| does not adjust uniformly, but responds to where the
| money is spent. This is bad for inequality because
| typically the newly printed dollars are preferentially
| routed to politically connected client groups who then
| use these new (unearned) funds to purchase assets at
| prices that have not had time to adjust to the increased
| money supply.
| meragrin_ wrote:
| The Federal Reserve can tax?
| headbee wrote:
| Not directly as far as I know, but federal taxes are the
| other mechanism by which money can exit the economy. I
| should have stated as such.
| NovemberWhiskey wrote:
| How do taxes cause money to exit the economy? The
| government spends every cent it takes in from taxes (and
| some more): what happens is just redistribution.
|
| So (e.g.) it takes taxes from overpaid SV software
| engineers and makes Social Security payments, buys
| missiles from Lockheed Martin, pays interest on debt,
| etc.
|
| No; the Federal Reserve has essentially complete control
| over the monetary base.
| avrionov wrote:
| Here is paper from the Atlanta Fed which tries to explain the
| effect of QT [1]
|
| "I show that a passive roll-off of $2.2 trillion over three
| years is equivalent to an increase of 29 basis points in the
| current federal funds rate at normal times. However, during a
| crisis period with risk aversion being doubled, it is
| equivalent to a 74 basis point increase."
|
| [1]
| https://www.atlantafed.org/-/media/documents/research/public...
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