Fed announces $300 billion "quantitative easing"

Discussion in 'Economics & Trade' started by kazenatsu, Mar 30, 2020.

  1. Reiver

    Reiver Well-Known Member

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    You've explained nothing. Crikey, you haven't even defined inflation correctly. When asked to support your position you ran. Put that right. Refer to an economic analysis that suggests this will lead to 'big inflation', taking into account that this is an unprecedented crisis. Perhaps a right wing knuckle dragging site of no coherence?
     
  2. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    Well, let me start with this. Do you understand how the housing bubble led to the appearance of inflation?

    As you should know, a lot of the "money" in the economy is just money in bank accounts and reflects the value of homes that there are loans on.
    So when those home prices became inflated beyond what was sustainable, it led to bigger loans, and more "money" circulating around in the economy. (People thought there was more wealth than there actually was)

    Once the housing market began to deflate, suddenly a lot of the money in those bank accounts wasn't actually there. The loans went bad.

    This would have resulted in deflation back down to normal levels if the Fed had not intervened.

    Now, is there any part of that you don't understand, Reiver?
     
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  3. Reiver

    Reiver Well-Known Member

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    I didn't ask for non-economic prattle. I asked you to support your position with a credible economic source. What can't you? Come on now.

    Perhaps a reference to the hyperinflation created by WW2? That would be jolly! Just feckin something than more than baseless opinion.
     
  4. squidward

    squidward Banned

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    And lets not forget the overvalued sum of your portfolio that is artificially sustained, and the under market value interest payments on savings that your monetary inflation inflicts on responsible citizens that save, an invisible cost not added into your "inflation" calculations.
    And of course the many many hundreds of trillions of dollars worth of derivatives products,
    Which now threaten the global finance system, which the people will be forced to bail out, for their own good of course, and for which many billions if not trillion$ have and will be transferred directly into the pockets of the ones responsible for the monetary inflation, including your income which would be nonexistent without the government hand in the markets.
    And of course all of the financial support taxpayers will have to fork out to sustain the unemployed caused by the bust your monetary inflation is causing.

    So as you see, your inflation will be transferred onto a select subset of the population, the productive, while you unproductive market managers collect your rents
     
  5. squidward

    squidward Banned

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    Translation: The stuff you "economists" don't like to speak of.
     
    Last edited: Apr 7, 2020
  6. Reiver

    Reiver Well-Known Member

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    Again, I simply asked you to support your argument with an economic evidence. Economists are a diverse bunch. Can't you find one that concludes education price inflation reflects QE? You'd need one that doesn't understand the definition of inflation and work from there ;)

    Its as if you're making bobbins up...
     
  7. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    We don't need to. You made a claim, and we just suggested a reason why your argument may likely not be valid.

    If you make a claim to try to disprove someone's argument, then the burden is sort of on you to prove that the claim is still valid when the other side points out a big potential hole in your logic.

    Your claim was basically that the Fed pumped out money during the housing crisis, and we didn't seem to see inflation. We suggested a very legitimate reason to you why that does not mean printing more money does not have an inflationary effect.
     
    Last edited: Apr 8, 2020
  8. Reiver

    Reiver Well-Known Member

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    Let's go through my claim. I claim that your "big inflation" cobblers is unsupported by any credible economic analysis. I've been a good egg, mind you, and offered you chance after chance to rebuke that claim. All you have to do is reference an economic analysis in support.

    You either do not know whether that evidence exists (and constructed opinion based on fluff) or you know that it doesn't exist (and you have no credibility). Which is it?
     
  9. a better world

    a better world Well-Known Member

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    Yes you can! Money is nothing more than 'points' to measure real commodities, resources and services.

    http://www.politicalforum.com/index.php?threads/mmt-overcoming-the-political-divide.569365/

    "The Chairman of the Federal Reserve Bank is telling us in plain English that they give out money (spend and lend) simply by changing numbers in bank accounts. There is no such thing as having to “get” taxes (or borrow) to make a spreadsheet entry that we call “government spending.” Computer data doesn’t come from anywhere. Everyone knows that!

    Where else do we see this happen? Your team kicks a field goal and on the scoreboard, the score changes from, say, 7 points to 10 points. Does anyone wonder where the stadium got those three points? Of course not!......

    We all know how data entry works, but somehow this has gotten turned upside down and backwards by our politicians, media, and, most all, the prominent mainstream economists. Just keep this in mind as a starting point: The federal government doesn’t ever “have” or “not have” any dollars.

    So you can persist with your obsolete mainstream neoliberal economic orthodoxy if you like, except we are fast approaching the stage where global debt is larger than global GDP - even while inflation is dead in the water, as reiver has being trying to point out to you.

    And then what will you have to say on the topic?
     
    Last edited: Apr 8, 2020
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  10. a better world

    a better world Well-Known Member

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    Meanwhile, The Rolling Stone editors are getting their knickers in a knot, too, since they think all that money will have to be repaid by taxpayers. (It might be - that's what rich bond-holders like - but it doesn't HAVE to be).

    https://www.rollingstone.com/politi...coronavirus-fed-bank-bailout-disaster-976086/

    "Bailing Out the Bailout

    It will take years to sort through the details, but Trump’s $2 trillion COVID-19 response looks like a double-down on the last disaster"

    I’ve never signed anything with a ‘T’ before,” Donald Trump quipped at the signing of the $2 trillion CARES Act. He reportedly wants his signature on coronavirus relief checks, as if they were Trump Plaza casino chips. This might be a fitting metaphor for America’s post-virus economic future.

    (.....)
    As happened in the run-up to September 2008, Wall Street in recent weeks warned of Armageddon if the Fed did not immediately start spending billions per minute to buy every conceivable kind of financial product.

    The Fed responded by dusting off emergency lending facilities like the Term Asset-Backed Securities Loan Facility, the Commercial Paper Funding Facility, the Money Market Mutual Fund Liquidity Facility, the Primary Dealer Credit Facility, the Secondary Market Corporate Credit Facility, and the Primary Market Corporate Credit Facility, all of which saw action after the crash of 2008. Each would be used to step in and buy financial products in the various markets frozen due to virus panic.
    (……)
    A few years ago, for instance, the infamous junk-bond ghoul Mike Milken — the same one recently pardoned by Trump in a macabre symbolic show of solidarity for the bullshit debt economy — gushed to Bloomberg that America was in a “golden age” for private-equity takeovers.
    (.....)
    Milken was pointing out that investors were so desperate to find higher rates of return that they were lining up to back the modern Gordon Gekkos — private-equity titans like Bain, Blackstone, KKR, and Apollo — as they searched for companies to take over. At the time Milken gave this interview in Singapore in 2017, investors were sitting on some $963 billion in “dry powder,” money raised but not yet spent.
    (.....)
    In their haste to get that money out the door (stop me if this sounds familiar), investors were relaxing demands for underwriting standards and other protections. This is what Milken meant by “buying without covenants.”
    This dynamic spurred a boom in securitized commercial loans not totally unlike the boom in securitized mortgages pre-2008. An explosion of financing for private-equity deals meant an economic landscape dotted with newly conquered companies that now owed an array of fees and “special dividends” to their Wall Street masters.
    (.....)
    “Corporate debt since the bailout has grown to $10 trillion,” says Kelleher. “Of that, $3 trillion is a notch above junk level, what I’d call on the bubble of junk.”
    It’s been estimated, for instance, that as many as 16% of American companies are “zombie companies,” i.e., they don’t have enough revenue to even pay interest on their debt. As Kelleher points out, many of these firms might not have survived even a mild economic downturn. Propping up this freak show, even if indirectly, is now going to become part of the War on the Virus.
    (....)
    The Fed “balance sheet” as of Friday was already at $5.3 trillion, nearly $800 billion higher than its previous peak in May 2016. Wall Street analysts are predicting this number will eventually reach $10 trillion, and why not? Fed chief Jerome Powell signalled that assistance would be unlimited when he said the central bank “would not run out of ammunition.”

    ..........

    Courtesy of mainstream orthodox neoliberalism. The question is: will ordinary taxpayers be forced to fund this "freak show" forever, or will the government piss off the bondholders by using its currency issuing capacity, and then close down the <parasitic -ponzi-casino> financial industry once and for all.






     
    Last edited: Apr 8, 2020
  11. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    I will also point out there were some additional reasons you did not see inflation.
    Wages went down as so many became unemployed in the wake of the housing crisis. This helped prevent prices from going up. Then of course housing prices went down, because the housing market collapsed.
    And finally, the Saudis lowered oil prices at the request of the US to try to help at the time.

    That does not mean there was not inflation, it just means you didn't see it.

    Or rather to say, it prevented overall prices from going up at a time when the dollar became worth less.
    So of course it would not show up in the inflation statistics.
     
    Last edited: Apr 8, 2020
  12. a better world

    a better world Well-Known Member

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    So your whole argument seems to be based on concern about inflation.

    Japan has debt 2.5 times its GDP, low interest rates, no inflation.

    Your answer, pay down government debt ASAP... by cutting government expenditure, while interest rates and inflation are near zero, and private debt is high...….which will cause a recession......
     
    Last edited: Apr 8, 2020
  13. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    Um... yes. Why else would anyone be concerned about government increasing the money supply?

    Japan isn't exactly the best country to point to. Their economy was not doing so well for a long time.
    They had a huge housing bubble in the late 80s. At one point it was actually cheaper for residents of Tokyo to fly to Hawaii and play golf there rather than go to a golf course around the Tokyo area, the real estate was so overvalued and the local prices inflated because of the economy.

    And you can't simply compare one country's debt to GDP ratio to another country's.
    I addressed part of this in another thread:
    GDP to population ratio, and ability to pay down the debt

    I hate to start going off-topic, but I've discussed this numerous times in the past.
    I don't think Japan's economy started recovering until prices finally had a chance to start gradually going down to affordable levels. Or rather routine inflation gradually ate away at the existing prices.

    Japan's Central Bank could have let those prices go down in the first place, but they resisted it. So there are some economists who blame Japan's zero percent interest rates on prolonging their recession for so long. Several books have been written about this.

    I actually started a past thread about this, trying to shed light on all the economic suffering that took place in Japan:
    Homeless in Japan

    I even found a video:
    Japan's economy destroyed by quantitative easing
     
    Last edited: Apr 8, 2020
  14. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    You appear to be right, but I think the lack of inflation was mainly due to the deflationary effect of financially struggling workers in the wake of the property crash, and then the gradual decrease in prices (adjusted for inflation, and remember the Central Bank took drastic unprecedented action to try to prevent them from falling), and then the gradual population decline, that further relieved some of the pressure on real estate prices.
    If it had not been for their central bank, the value of the Yen could possibly have greatly appreciated (deflation).
    Something the Japanese government doesn't want (like other Asian countries they are trying to encourage exports), but which would have greatly benefited Japanese consumers, and could have resulted in government revenues going further.
     
  15. a better world

    a better world Well-Known Member

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    You are forgetting that deflation increases the real cost of servicing private debt, since the real value of the debt would increase.

    So deflation only benefits some citizens.
     
  16. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    Only if that deflation is unexpected.

    I would point out to you that inflation does not necessarily decrease the cost of servicing private debt, since lenders will just demand additional interest to compensate them for the inflation rate.
     
  17. a better world

    a better world Well-Known Member

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    I'm not saying the Japan economy is a paragon of virtue, only used it as an example that massive debt per say in not inflationary.

    OK lets look at the US....with it's massive zombie derivatives casino, which Wall St is again insisting Powell support with unlimited Fed money printing, to "bail out the ongoing GFC bailout" (Rolling Stone).
    Meanwhile, still no sign of inflation.

    Face it: money is merely a 'points' measurement of resource value.
    Excess demand on available resources, and/or over-stretching productive capacity, is THE issue, re inflation.
     
    Last edited: Apr 9, 2020
  18. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    My argument is that it is inflationary, but we don't see that inflation because it comes on the heels of massive deflation resulting in the wake of a bubble popping.
    That the inflationary effect is pretty much exactly cancelled out by the deflationary effect is not surprising, because the Central Bank is specifically targeting its policy to try to be enough to put the brakes on the bubble popping, and keep the asset prices where they are.
     
  19. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    I can understand the argument that the money supply should be in proportion to economic growth, but what I have more trouble understanding is what exactly "over-stretching" entails. What exactly is it that you mean by "capacity"?
    How can pumping more money into the system result in more production? Wouldn't it simply result in redistribution of the production?
     
  20. a better world

    a better world Well-Known Member

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    Would they? meanwhile central banks couldn't raise interest rates even if they wanted to (before the pandemic), without crashing ponzi share-markets with elevated P/E ratios (because people with money have nowhere else to earn an income from their money (via interest payments).
    But now we have low interest rates, low inflation, AND government debt rocketing sky-high to keep people alive, with still elevated private debt in an environment of low median wages growth.

    Such are the wonders of orthodox monetarist neoliberalism.

    Face it: money is merely a 'points' measurement of resource value.
    Excess demand on available resources, and/or over-stretching productive capacity, is THE issue, re inflation.

    Time for governments to sensibly employ their currency issuing capacity, to enable movement beyond austerity imposed on citizens by endless public sector debt servicing obligations.
     
  21. a better world

    a better world Well-Known Member

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    Good questions, but I thought we had already covered them in the MMT thread.

    "Productive capacity": The ability of a factory to increase its output, either by hiring more workers, and/or increasing the number/type of machines. We can't move beyond that capacity.

    Economy wide, product prices will not increase as the volume of output increases, because competitors will also be chasing a share of the increased market size.....which results from increased consumer spending (enabled by government issuing the currency, eg, in a private sector downturn).

    See above.
    As for "redistribution": government can certainly offer an above poverty level JG, to complement market employment outcomes which usually entail less than real full employment.

    In fact real full employment - implying extra spending power - might not involve redistribution at all, depending on the type of resource utilisation.

    But in any case, given the experience of the last 4 decades, with wealth inequality now soaring to pre GD levels (and the top 20% of Americans owning 90% of total household wealth, and CEO wages now >300 times median wages, up from c.30 times over the last several decades, some redistribution may be in order.....
     
    Last edited: Apr 9, 2020
  22. Reiver

    Reiver Well-Known Member

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    This really isn't cunning. Its basically just saying monetary policy works (and therefore it is no different from neo Keynesianism). "Its inflationary but it isn't" is nonsensical comment. All that matters within that neo Keynesian perspective is the end result for the Phillips Curve.

    Of course the real problem is that neo Keynesianism is based on a conservative outlook focused on what the government shouldn't do, rather than what it should. That engineered the false debate with the monetarists, which was ultimately used to suggest QE is only allowed to protect finance capitalism. Of course economic history refuses to play ball. We see that with WW2. Conservatism by Roosevelt ensured that the US couldn't escape the clutches of the Great Depression. It was WW2 change, with that conservatism forgotten, that drove the US economy. That generated post war boom and, despite the massive ratcheting up of fiscal policy, only a short term inflation of 8% or so.
     
  23. LafayetteBis

    LafayetteBis Well-Known Member Past Donor

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    COVIN-19 AND THE NATIONAL DEBT

    Which is a Very Good explanation of why the National Debt has skyrocketed over the past decade:
    [​IMG]

    Uncle Sam is living beyond his means, but that's OK because unemployment is low - and that's all voters care about.

    Which is why political parties try to make sure they get low unemployment. But high debt-payments AND massive expenditure upon the DoD when there is no war being fought of any consequence!

    Something has gone very, very wrong and it all started in 2007 with the Replicant PotUS at the time. Ever since then the national-debt has been gradually increasing every year. Aint nuthin' wrong with that?

    For as long a they keep buying our debt (from T-bonds) which allows Uncle Sam to meet debt interest payments - no problem!

    But when the "fit hits the shan" is the come-awake moment. And it ain't nice at all. The Debt-Door slams shut. (The world stops buying Treasury-notes. And when that happens the banks go bust and the economy takes it right on the chin, chin, chin.
    No more lending. No more market expansion. The economy stagnates.

    What THEN happens could make the Great Recession (2008/10) look like a picnic.
    That "last time" the series of consequences looked like this: Great Recession Time-line
    Apparently, we've learned nothing from that above sequence of events. Because another one is in the making - and Covin-19 could likely prompt it ...
     
    Last edited: Apr 10, 2020
  24. a better world

    a better world Well-Known Member

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    Actually I can agree with both of you in this instance, since "the Left" are more soaked in neoliberal mythology than the Right....who in the Trump era have abandoned any pretence of concern about deficits.
     
  25. a better world

    a better world Well-Known Member

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    Still hung up on debt?

    Actually, I would love to see Covid-19 just infectious enough to force a 12 month shut down of the global economy, with a mortality rate less than 1%.

    Then "the fit would really hit the shan…." and your neoliberal monetarist mythology would finally be exposed in all its foolishness, as the entire global economy except essentials would need to be put in 'hibernation' and nationalised ( ie 'globalised'), with food and accommodation for all 7.5 billion of us funded by BIS/IMF "money printing"...without a hint of inflation appearing anywhere.....since there is already enough food being produced to feed everyone.

    Or we could could go to war...the old fashioned solution.
     
    Last edited: Apr 10, 2020

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