patrick.net

What do you mean by lose control of their balance sheet?
They can grow and shrink their balance sheet like they want, right?

Heraclitusstudent says

What do you mean by lose control of their balance sheet?

They can grow and shrink their balance sheet like they want, right?

So true. You don't think they are really printing money, do you? No! They are just moving decimal points over in their ledgers.

Not true. The federal reserve cannot just create money willy-nilly.

The main "currency" of the Fed is the public debt. The Fed first creates money by accepting Treasury Bonds as payment for Federal Reserve Notes (the green pieces of paper that we call "money").

However, what the Fed does with the resulting bond holdings is critical. In good times. the Fed just sits on the bonds and collect interest from Joe Taxpayer. Basically, they are charging us interest on the basic money supply (currency), and then (at least partially) passing that profit on as interest to member banks that are required to deposit their reserves with the Fed.

But in bad economic times (defined as "when the banks really are insolvent"), the Fed use their treasury bond holdings to perform open market purchases, e.g. "quantitative easing". That is, they use the Treasury Bonds (=Public Debt) as payment for risky/lossy bonds that the member banks want to get rid of. If the Fed runs out of Treasury Bonds, they no longer can perform QE. Because Treasury Bonds are deemed very credit-worthy ("as good as money"), the banks can in turn use them as payment for all kinds of assets that they want to buy at the bottom, such as stocks in March 2009 when the stock market was very cheap, relatively speaking. Regular people generally were not able to buy in at that time, because credit was tight and they could not borrow from the Fed, only banks can. So it is all quite the big scam.

Anyway, without a steady increase in public debt, the Fed cannot rescue the member banks, and cannot stay afloat. The Fed cannot grow its balance sheet beyond the size of the public debt.

The 1% always bitch and moan about the terrible public debt, mostly because they are afraid that they will be required to pay higher taxes to pay the debt. But reality is that the public debt is absolutely essential for the 1% to engage in their racketeering and scams.

When did the Fed buy all Federal debt?

Oh, they only own $2T of $16.75T total.

http://research.stlouisfed.org/fred2/series/TREAST

I guess their QE "gun" has a few more bullets in it.

Good news is if they want to acquire a higher percentage of public debt, they wll drive interest rates down.

The Fed does not buy ALL Federal (public) debt. The only debt the Fed buys outright is the one converted to greenbacks.

But the Fed's public debt holdings is the upper bound as to how big the Fed balance sheet can get, short of the Fed having other liquid assets such as gold on hand.

Some of the the Fed's public debt holdings come from the reserves deposited by member banks, again acceptable as reserve because it is considered "as good as money". During QE and other "open market operations", the Fed sells these debt instruments for other risky/lossy debt instruments.

justme says

But the Fed's public debt holdings is the upper bound as to how big the Fed balance sheet can get, short of the Fed having other liquid assets such as gold on hand.

The federal reserve also buys mortgage back securities. It could also buy whatever it wants: corporate bonds or even stocks. (I think the bank of Japan is buying stocks). So they can grow their balance sheet essentially as much as they want. They could also have the treasury print more money literally and distribute more bills, which is the other side of their balance sheet.

On the post above: interests collected by the fed reserves are returned to the treasury.

As far as swapping bonds for other assets, it's not clear if you are talking of repo operations. Open MArket Operations is essentially QE where they buy bonds with fresh cash. Repo has nothing to do with QE. It's just member banks parking assets temporarily at the Feds in exchange of cash, thus allowing the Feds to control rates.

justme says

But the Fed's public debt holdings is the upper bound as to how big the Fed
balance sheet can get, short of the Fed having other liquid assets such as gold
on hand.

No, the Fed's balance sheet can grow limited only by GDP growth. The reason the Fed exists is because some smart people realized that allowing Congress to control the money supply was dangerous - it is then subject to the whims of the elected. And as we all know those guys are incompetent, corrupt, easily bought, and macroeconomically illiterate.

All conspiracy theories aside, QE has helped the economy recover.

The stimulus worked.

The sluggishness you are seeing RIGHT NOW is a factor of the sequestration. Let's not lose sight of that next year when teatards are claiming the economic weaknesss is due to Obamacare, the income tax increases, and "regulations" that have not changed signficantly in 10 years.

Inflation is a good thing.

Heraclitusstudent says

The federal reserve also buys mortgage back securities. It could also buy whatever it wants: corporate bonds or even stocks. (I think the bank of Japan is buying stocks).

I think you are missing a point: The Fed has to PAY for what they buy. The payment they use is public debt instruments from their holdings. It is not permitted (illegal) for the Fed to print greenbacks to pay for (say) mortgage securities.

control point says

The reason the Fed exists is because some smart people realized that allowing Congress to control the money supply was dangerous

This is only a partial truth. The real reason the Fed exists is that it is more profitable for the banks to have control over the credit (not money) supply.

justme says

I think you are missing a point: The Fed has to PAY for what they buy. The payment they use is public debt instruments from their holdings. It is not permitted (illegal) for the Fed to print greenbacks to pay for (say) mortgage securities.

My understanding is they pay with cash (created out of thin air) for treasury bonds, and they pay with cash as well for MBS. That's what the QE they are currently doing is all about.

Even if they had to use treasury bonds as a currency, it would only add an intermediary (a useless one). And they could still grow their balance sheet beyond public debt: just pay with a bond for a MBS, then buy back the bond. Voila.

justme says

The real reason the Fed exists is that it is more profitable for the banks to have control over the credit (not money) supply.

Actually the fed's job is to protect the Banks and to protect the political power of the Fed.

thedailypr says

Actually the fed's job is to protect the Banks and to protect the political power of the Fed.

Same thing.

Heraclitusstudent says

My understanding is they pay with cash (created out of thin air) for treasury bonds, and they pay with cash as well for MBS. That's what the QE they are currently doing is all about.

Nope.

Heraclitusstudent says

Even if they had to use treasury bonds as a currency, it would only add an intermediary (a useless one). And they could still grow their balance sheet beyond public debt: just pay with a bond for a MBS, then buy back the bond. Voila.

The Fed can only do this when the US Treasury issues these bonds directly to the Fed. The Fed is not permitted to print greenbacks to pay for open market purchases.

justme says

It is not permitted (illegal) for the Fed to print greenbacks to pay for (say) mortgage securities.

vs

http://research.stlouisfed.org/fred2/series/MBST

doing what you say they can't, bring new assets onto their balance sheet.

http://research.stlouisfed.org/fred2/series/TREAST

control point says

Inflation is a good thing.

unless you're a renter, on a fixed income, or don't own assets that are inflating along with the rising cost of living.

Inflation sucks IMO. I like it when prices go down, not up. That's progress.

Bellingham Bill says

unless you're a renter, on a fixed income, or don't own assets that are inflating along with the rising cost of living.

Inflation sucks IMO. I like it when prices go down, not up. That's progress.

As long as your wages/salary aren't going down faster than prices...

IMO--all that matters is real wages.

Bellingham Bill says

unless you're a renter, on a fixed income, or don't own assets that are
inflating along with the rising cost of living.

Or have any debt. That's the big one.

Inflation discourages rent-seeking.

How many renters on fixed income that have no other assets besides cash or bonds(but not TIPS), and no debt do you know?

control point says

Inflation is a good thing.

Sure it is, it is so good that nearly 1 in 6 are now on food-stamps and nearly half depend on some sort of government subsidy. Surely you must have been jesting ;)

control point says

How many renters on fixed income that have no other assets besides cash or bonds(but not TIPS), and no debt do you know?

That is absolutely irrelevant. In countries that are not worshipping consumerism and debt-slavery most of the middle-class is debt free. And even in the US there are plenty of people who paid off their debts that are part of the middle class. Also, inflation is not automatically good if you are drowning in debt given the fact that you still have to pay all the highly inflated prices for essential goods where it's cash or fuck you (maybe you can max out a couple of credit cards but then it's the end of the line) which will make you more likely default on the huge pile of debt that you then cannot service anymore. A country living in constant fear of the 10-yr yield is not bound to prosper.

control point says

All conspiracy theories aside, QE has helped the economy recover.

The stimulus worked.

Those who think the stimulus worked suffer from a bad case of recency bias.
Similar stimulus were applied after 2000, and after the preceding bubble, right?
And for what result?

- economy growing below 2% in spite of these massive historic stimulus.
- employment down 2 millions from peak 6 years ago, in spite of population 10+ millions larger
- stock market still down from its peak 13 years ago in real terms
- median household income down from peak more than a decade ago
- base costs of living: education, healthcare, housing inflated through the nose.
- debts at all level of society: government, household, financial and non-financial companies, all going through the roof
- savings basically non-existent just before a large wave of boomers retirement
- large structural trade deficit persisting for decades.
- multiple assets bubbles causing average people to lose large amount of wealth.
- massive malinvestments cause by credit distortions implied by monetary stimulus
- massive immoral bailout of rich people with taxpayer money required
- problems from one bubble masked by new bubbles. No problem solved, only masked.

So yes, in a myopic sense you could say we bounced back from the previous bust. But how easily they forget how they inflated the previous bubble and caused the bust to start with.

control point says

All conspiracy theories aside, QE has helped the economy recover.

The stimulus worked.

What.... ha ha ha ha lol.

It has not. It has failed.

Over 5 Million people are no longer employed or SEEKING work, since the crash.

This number grows daily. But you still think we have a recovery!

Clueless...!

control point says

The sluggishness you are seeing RIGHT NOW is a factor of the sequestration

Really? Sequestration is QE? No I think not.

One thing has nothing do with other.

Also, before Sequestration the numbers still reflected massive underemployment and depression of the middle and lower classes.

Sure, Sequestration didn't help, perhaps Obama should not have suggested it!

control point says

The stimulus worked.

Failed, very clearly, Failed.

There is no RECOVERY.

Just a HUGE AMOUNT OF NEW PUBLIC DEBT!

Just manipulated part time labor figures to look positive.

Real unemployment is over 15% nationwide and a lot worse for the youth, something like 49%++++.

USA is not creating nearly enough FULL TIME JOBS.

Over 77% this year alone are all 3 day a week jobs.

thedailypr says

Failed, very clearly, Failed.

That's because you clearly don't know how to measure success vs. failure. You need to compare where the economy was before the stimulus (or even where it WOULD have been without it) vs. where it is today.

thedailypr says

There is no RECOVERY.

http://research.stlouisfed.org/fred2/series/LNS12500000

pretty anemic, but about what we got before the 1990s took off, and materially better than the "jobless recovery" immediately prior to the housing boom-bubble.

tatupu70 says

That's because you clearly don't know how to measure success vs. failure. You need to compare where the economy was before the stimulus (or even where it WOULD have been without it) vs. where it is today.

No. It is you who is clearly delusional.

Where would we be without all that debt, is that what you are saying?

You think we had a recovery, OMFG! How sweet.. LOL Children will be children, priceless.

thedailypr says

Where would we be without all that debt is that what you are saying?

If the 1% is on the hook for that debt, it's a good thing, LOL

Bellingham Bill says

If the 1% is on the hook for that debt, it's a good thing, LOL

What makes you think that? lol

you know I'm right.

The elites took all the private debts public, remember?

Hence the QE to infinity...

and now all of the PENSION are GONE!

Enjoy the IOU when you retire.

Heraclitusstudent says

mortgage back securities

They are called "mortgage BACKED securities". "Mortgage back securities" doesn't even make sense as a phrase. What does that mean - you lost your mortgage and you get it back? LOL.

All this fucking pidgin English on the internet needs to stop.

the deal with the current recovery is that it's got to fight against MASSIVE over-extension in the consumer sector, and worse than that, the loss of the ~$1T/yr housing bubble machine.

http://research.stlouisfed.org/fred2/graph/?g=lkZ

times were good when everyone could borrow $20,000 or whatever every year, year after year.

thedailypr says

Where would we be without all that debt, is that what you are saying?

Yep--that's what I'm saying. You think that would be a better place? Talk about delusional and naïve.