What central bank monetary policy really does (Fed, FRB, ECB, BoE, BOJ)
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What central bank monetary policy really does (Fed, FRB, ECB, BoE, BOJ)

By justme following x   2016 May 21, 11:22am 2,991 views   14 comments   watch   sfw   quote     share    


This is an ongoing thread for occasional posts about the effect of and motivations behind monetary policy.

It is unusual for the financial press to quote anyone that states that the real purpose of FRB policy (ZIRP and QE) is/was to create asset inflation, and/or that said policies are largely ineffective for creating job inflation and wage inflation. (Besides, the Fed does not want wage inflation, anyway.)

But, there are occasional exceptions: The quote below is pretty factual, apart from the statement that claims asset inflation is an "explicit goal". The Fed NEVER says explicitly that they are targeting the stock market, for example. Fed officials may make some noises about the housing market or the mortgage market, but they never say that are trying to goose the stock market. Saying so explicitly would be dangerous to the Fed's survival as an institution. Savers, renters and retirees will not accept that the Fed steers inflation to benefit bankers and the 1% rather than renters and the 99%, if only they knew and understood that this is what the Fed actually does.

http://finance.yahoo.com/news/citi-well-only-slightly-less-103913876.html

“Central banks may be partially to blame for the misperception that economic conditions will be materially better than they are now when inflation is higher, contends Citigroup Inc. Global Head of G10 FX Strategy Steven Englander. To the extent that this true, it probably has much to do with the increased emphasis the Fed has placed on the wealth effect as part of the transition mechanism by which unconventional accommodation boosted activity when policy rates approached zero.”

“Asset price inflation, improving Americans’ aggregate net wealth in the process, has been an explicit goal of Fed policy.”

What Americans' net wealth exactly? Well, basically the US top 1% is in a contest with the rest of the world about who can have the most overpriced houses and the most overpriced stock market, because that makes the top 1% richer. Nevermind the rest of the population. Never mind actual jobs and production. The goal is to dominate everyone else, inside and outside of the country.

#economy #housing #federalreserve #Fed #FRB #ECB #CentralBanking #Recurring

#recurring #justme

1   someone else   ignore (0)   2016 May 21, 12:58pm   ↑ like (3)   ↓ dislike (0)     quote      

overvaluation is pretty easy to see in both houses and stocks:

an overvalued house is one which sells for more than the value justified by rents. just use the ny times rent vs buy calculator with the defaults to get some idea of the breakeven point for renting and buying. that is the appropriate price for the house:

http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?ref=patrick.net

similarly, stocks may be valued according to earnings, thus we have the p/e ratio as a similar handy measure.

the fed can lower rates to temporarily raise these asset prices, but then it has cornered itself. it cannot raise rates without lowering those asset values, and if it simply keeps rates low forever, it's doing nothing at all really.

2   justme   ignore (0)   2016 May 23, 2:34pm   ↑ like (2)   ↓ dislike (0)     quote      

The mainstream media is starting to wake up and understand what FRB monetary policy is really doing, and who benefits:

http://www.marketwatch.com/story/the-fed-has-fueled-inflation-and-its-helping-the-rich-2016-05-23

QUOTE:

Now a research paper by Rob Arnott and Lillian Wu of Research Affiliates in Newport Beach, Calif. asks why the CPI doesn’t reflect the inflation that is apparent in places where people spend their money.

Arnott and Wu argue that the four biggest expenditures for most people — rent, food, energy, and health care — have been rising. Since 1995, rents have been rising at 2.7% clip, energy at a 3.9%, food at 2.6%, and health care at 3.6%. Notably, these four expenses account for 60% of the aggregate of people’s budgets, 80% of middle-class budgets, and 90% of the budgets of the working poor.

...
Indeed, these Four Horsemen are galloping along, outstripping headline CPI, but it has taken six years of massive government spending, borrowing, and central bank stimulus for real per-capita GDP to regain its pre-recession peak.

The massive stimulus since the Great Recession of 2008-09 hasn’t brought much benefit to America’s middle class.

In addition, 50th percentile income has barely budged since 1970, and real per-capita GDP continues to outstrip it in a breathtaking manner.

In other words, the massive stimulus since the Great Recession of 2008-09 hasn’t brought much benefit to America’s middle class. Rather than unleashing the “animal spirits” of the private sector, it has arguably served to stagnate economic and wage growth. Monetary policy, in particular, may be stimulating inflation in financial assets including stocks, bonds, and real estate — further widening the gap between rich and poor, and hollowing out the middle class, according to Arnott and Wu.

3   justme   ignore (0)   2016 Sep 9, 12:19pm   ↑ like (0)   ↓ dislike (0)     quote      

Stock markets abruptly dropped today--but why?

Yesterday, Mario Draghi of the European Central Bank held a press conference and essentially announced that the total amount of Quantitative Easing (QE) by ECB will not be increased at this time. The target currently is 1.7T euros.

Because of this announcement, stock prices, bond prices and oil prices have dropped abruptly in Europe and later in the US when the markets opened. Which is what those prices should do, under the circumstances. Stocks and bonds (and houses) are massively overvalued, and the only factors propping them up have been ZIRP and QE.

While a solid reduction in bond and stock and housing prices would be a boon to the REAL economy of labor and production, one must ask why ECB is doing this. Normally, central banks in reality only care about inflating asset prices (contrary to what their "official" mandates are, those mandates being a false mumbo jumbo of "full employment" and "moderate inflation"). The answer appears to be that Draghi is trying to pressure the governments of the EU to "stimulate" government spending, which of course mostly will be deficit spending, rather than having them rely on QE and other central bank manipulations. Basically, the bankers are realizing that QE is getting to the point where it is no longer "effective" (not that it ever was effective at much else than making the top 0.1% richer by giving them funds to speculate with). Bankers now want to load up Joe Taxpayer with more debt, so that the banks again can skim a profit.

So that is what is going on. Whether "fiscal stimulus" = deficit spending will be increased remains to be seen. What is really interesting is that the ECB announcement is getting scant airplay in the news today. The ECB announcement is *the* main reason for a wide and abrupt drop in the stock markets, but most financial and general news outlets did not make this story into front page news, at least not by the time of this writing.

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Terminology: Quantitative Easing (QE) = central banks accepting bad bonds as good reserves by crediting them as reserves when deposited with the central bank, often at valuations well above what a free market would support.

Think about that for a moment. The QE "purchase" consists simply of accepting the bonds as reserve deposits. What are reserves? Well, they are the funds (normally in the form of the highest quality/safety bonds, such as US treasury bonds) held by the central banks to back (be collateral for) the flow of payments between their member commercial banks each night. This includes all kinds of transactions where the origin is one bank and the destination is another bank. Such payments including check-clearing, debit card payments, online bill payment, electronic transfers, indeed any form of payment that bank customers need performed. If there is a net imbalance in payment between two banks, then one bank basically gets an increase in their reserves, and the other bank gets a decrease. Keep in mind that these reserves are just claims on a collection of debt instruments, some of which are risky bonds. So what this means is that the fundamental capital backing your deposits in any bank has been of deteriorating quality and safety.

Reference:
http://www.wsj.com/articles/european-central-bank-leaves-rates-unchanged-1473335620

4   Dan8267   ignore (3)   2016 Sep 9, 12:41pm   ↑ like (3)   ↓ dislike (0)     quote      

justme says

It is unusual for the financial press to quote anyone that states that the real purpose of FRB policy (ZIRP and QE) is/was to create asset inflation, and/or that said policies are largely ineffective for creating job inflation and wage inflation.

The purpose of currency debasement is precisely
- to inflate assets owned by the rich
- to deflate wages
- to tax the middle class and send that tax revenue directly to bankers

5   someone else   ignore (0)   2016 Sep 10, 9:44am   ↑ like (3)   ↓ dislike (0)     quote      

Dan8267 says

The purpose of currency debasement is precisely

- to deflate wages

I hadn't considered this, but it seems true. Instead of lowering nominal wages, which would incite a revolt, the Fed lowers actual wages by inflating assets.

This puts pressure on workers to remain obedient servants of the rich, keeping the current power structure in place.

6   justme   ignore (0)   2016 Sep 13, 1:10pm   ↑ like (1)   ↓ dislike (0)     quote      

Indeed it is the case that

Asset inflation = Wage deflation

I would say that 99.8% of the population is unaware of this simple fact. You could also phrase it as

Asset inflation = Labor devaluation

7   APOCALYPSEFUCKisShostikovitch   ignore (26)   2016 Sep 13, 1:36pm   ↑ like (2)   ↓ dislike (0)     quote      

Wife's on the roof checking the Gatling guns.

Yams are mostly in storage and dry.

8   justme   ignore (0)   2017 Feb 25, 7:05pm   ↑ like (2)   ↓ dislike (0)     quote      

I recently made up a new term: NADIR = Nearly Always Declining Interest Rates

The NADIR era has so far lasted from 1982 to 2016(+).We shall see in March if Old Yellen is ready to up the interest rate from 0.5% and thereby put the brakes some more on the rampant ongoing asset inflation.

9   curious2   ignore (1)   2017 Feb 25, 7:25pm   ↑ like (2)   ↓ dislike (0)     quote      

Patrick says

actual wages

In economic vocabulary, the distinction would be between "nominal" and "real" wages, but yes, that's precisely what's going on.

The same is happening with the rising cost of employee medical "benefits," i.e. the part of an employee's pay that gets diverted to buying mandatory insurance, subject to deductibles and copayments and limitations and 10x markups. Employees who travel to other countries are often amazed to find they can buy retail for less than their insurance "benefit" copayment here. Instead of an explicit pay cut, the employee gets a nominal raise and a greater "benefit" package. As long as the mandatory insurance is phrased in terms of "benefits," they can keep increasing and the recipients feel like they're "winning", even while they're losing. I know several people who have gone in for really expensive surgeries and prescriptions, and they feel "valued" because the "benefits" appeared to cost so much. They're actually worse off than if they'd got better work someplace cheaper, but they get confused by the gigantic "explanation of benefit" numbers, like they've won a lottery. It's a triumph of marketing psychology over economics.

10   someone else   ignore (0)   2017 Feb 25, 9:09pm   ↑ like (1)   ↓ dislike (0)     quote      

curious2 says

The same is happening with the rising cost of employee medical "benefits," i.e. the part of an employee's pay that gets diverted to buying mandatory insurance,

Thanks, that's a really interesting point.

11   thepaine   ignore (0)   2017 Feb 25, 9:15pm   ↑ like (0)   ↓ dislike (0)     quote      

The only answer is to become a minimalist. Buy very little. Live simply.

We don't really need all this cheap Chinese crap anyway.

12   JZ   ignore (0)   2017 Feb 26, 9:33am   ↑ like (1)   ↓ dislike (0)     quote      

when it comes to money, nothing is new under the sun.
It is ALWAYS about wealth transfer.
In stead of directly taking your stuff or your labor away, which you will revolt, they force you to play a game you do not understand.
result is that they get wealth transferred to them, from you, the actual producer of wealth.
The funny thing is, how would the sheeple allow this happen for soooooo long? Initially i thought it was because sheeple is too stupid. Later on, i realized the sheeple allowed this because they think they can get some wealth transferred from other sheeple.
So the unsound money is a result of currupted mob who call this democracy.

13   anotheraccount   ignore (1)   2017 Feb 26, 10:03am   ↑ like (1)   ↓ dislike (0)     quote      

curious2 says

They're actually worse off than if they'd got better work someplace cheaper, but they get confused by the gigantic "explanation of benefit" numbers, like they've won a lottery. It's a triumph of marketing psychology over economics.

Most of my friends talk about their total compensation packages that includes healthcare benefits. People have been trained now to include mandatory spending as part of what they make. When a small company pays for its own insurance, you look at it as purely as an expense increase instead of compensation increase. Thanks ObamaCare.

14   justme   ignore (0)   2017 May 9, 6:50pm   ↑ like (1)   ↓ dislike (0)     quote      

Here is a good video that describes the nature of what the FRB (Federal Reserve Bank) did as part of their monetary policy since 2008-2009. Especially shocking are some of the transcripts from 2009 FOMC meetings, which are made public with a 5(?) year delay. Likewise, the description that some of the Mortgage Backed Securties that FRB bought as part of QE actually do not have any mortgages backing them! I guess that fact is what the "audit-the-fed" movement was supposed to expose, but never did.


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