This website states that China's balance sheet was actually shrinking, while others doing the opposite.. http://www.alsosprachanalyst.com/economy/pboc-balance-sheet-to-gdp.html
This sentence below was the concern of yours I was referring to. Sorry, if I wasn't clear on that. " The point is there is so much money sitting in bank reserves that if the economy heats up and that gets unleashed, making money expensive doesn't have all that much of an impact until the banks burn through their massive reserves. " And my point was that even if you are correct that making money expensive wouldn't cool things sufficiently. and I don't think you are, the Fed can stop any such eventuality in its tracks simply by raising the reserve requirement. But just the usual monetary action of increasing rates should be plenty sufficient to cool an over heated economy. It is easy for the Fed to both prevent major bubbles and to cool down an economy. The Greenspan Fed did not do it, but it wasn't because it was hard to do. I would guess the reason he did not raise rates when he could have was an unshakable belief in equilibrium theory in combination with political pressure and his firm belief that regulation of markets was a bad thing, even though he was the chief regulator. But why he did not step in and bring a halt to liar loans is a mystery. He was fully aware of them long before the crash. His inaction of that front reeks of dereliction of duty. It's indefensible!
I was sitting in a bank in 2003.. rates came down to the lowest levels I'd ever seen. Everyone wanted to refinance. Even people that had their houses paid off wanted to borrow money on their house. .write off the interest and turn around and buy tax free municipal bonds. Everyone at the bank made over a 100k that year.. one guy brought in a million. Money was easy.. markets were moving.. housing prices were booming. Greenspan looked like a star. Now.. the problem got worse when more and more subprime loans were being written. There were no laws to govern the lending. They weren't selling crack. It was legal. They thought they could calculate risk.. "housing prices never fall".. bang bang boom and here we are.
(1) Your statement was that you don't know what's in the MBS portfolio. Now it's that you don't know the quality of this stuff. Well, let me tell you, you aren't even asking the right questions: you should also want to know the LTV of these things, the repayment speed, the spread at which the fed bought it, and the right now. Forgive me, but I really don't feel like writing a tome on the basic structure of the mortgage market. Please refer to the intro chapter of a standard fixed income book - they can do a FAR better job than I can. And it will address the quality issue of 'agency' MBS (*). I'd be happy to make recommendations. (I'm being sincere, not trying to be flippant). * You should know that agency MBS trade only tens of bps over treasuries in the open market.... so that should get you some idea of at least the market's perception of its quality. And this is post 2008. (2) The whole point of 'portfolio channel' is that asset prices will go up (as investors are pushed into risky assets). So, isn't that sort of a sign that the channel is at least doing something? (history is judge whether it ultimately worked or not). (3) I said 'usually', not 'always'. The fed buys a small amount of on-the-runs and 1st and 2nd olds. If you look at those SOMA holding list, you see that the VAST majority are in high coupon off-the-runs deep in the belly of the curve. (3a) Just to be clear, by a 'fee', do you mean a commission type of fee, or a spread on top of what its customers offer(**)? If the latter, isn't that just how every single dealing desk in the world works? The Fed in return doesn't have to deal with hundreds of possible counterparties? (**) More than just the bid/offer, there are some technical legit charges concerning repo here.
Why do you think they wouldn't? reserve requirement is explicitly one of their tools. You also didn't address my point that the balancesheet will effectively shrink when they allow their SOMA portfolio to mature. No action needed.
What's lost in this debate is the forest from the trees. The Federal Government and Central Bank do not have the luxury of time while they rack up the national debt. That's the point. Time is against us. The ongoing shit-show in Europe is a prelude to our future. That's what they peanut gallery can't seem to wrap their heads around. FED apologists laud our debt-financed interventionism, while major parts of Europe, are insolvent from their own excessive borrowing. Which proportionately, is not much greater than our own. Reinhart and Rogoff compiled an exhaustive work on the outcomes of net creditor nations that take on excessive debt, and their outcomes. Past 90% debt-to-GDP, the likelihood of a large depression is high. Past 100-110%, the likelihood of a default/restructuring/major depression/currency collapse is high. This is not the first time in history idiots have leveraged their countries into bankruptcy with dire consequences. This has happened over and over and over again. The argument that we are somehow "special", that it "can't happen here", is pure nonsense. Piezoe is convinced we are not Portugal, Spain, or even Italy. Crisis avoided because Piezoe says everything will be a-okay. The facts are worth repeating and examination. The magnitude of Federal borrowing and Central Bank QE to keep this economy on life support is shocking. State and Local Governments not withstanding, the Federal Government is borrowing roughly 7% of GDP, per year (1.1 Trillion). The FED plans to purchase another 500 Billion, per year, in non-treasury related securities (MBS), to boost the economy further (QE3 or 4??). This amounts to total net borrowings of 1.6 Trillion dollars for 2013, which translates to 10% of GDP. Throw in the fiscal multiplier (~1.6), and we're short about 16% GDP. This is a massive fucking hole. This cannot be "dug out of" with "shovel-ready' "make-work" bullshit rhetoric. We have a serious motherfucking problem here. The point I made at the beginning of the thread holds relevance. The Federal Reserve is upping it's MBS purchases to take pressure off the budget deficit. It's moving the debt off the public balance sheet, onto the FED's balance sheet. It's more an accounting trick to win market confidence. Either way, it doesn't hide the fact the economy is still short 10% GDP raw (16% GDP with the fiscal multiplier). What happens next? Assuming the markets can be fooled with the accounting game, the official US budget deficit will be used to calculate debt-to-GDP. At a 7% annual budget deficit, we've got 4 years until America hits 130% debt-to-GDP. That's pretty much where capital markets balked at refinancing Greek, Portuguese and Italian paper. It's where those countries effectively went bankrupt. The response from Keynesians is Japan. Always Japan. Japan is a net creditor nation. We are not. The total amount of foreign holdings of Japanese sovereign debt are miniscule compared to the BOJ's holdings of foreign securities. The reverse is true for America (and Greece, Portugal, Spain, Italy, France, the UK etc). There is no anchor to the dollar, past a certain point. The same idiots who got us into this mess, intend to push us to the brink of a currency collapse, in the name of staving off a secular depression. Think about the idiocy of that for a moment. You've got clowns like CTGov who can't see past the transactional minutia, to KTM, who drives a tractor trailer through the rear-view mirror. This type of backward, reactionary, "stability at all costs" policy has dominated Keynesian thought, post-Volker. It's largely political strategy to keep corporate owners happy, with no respect to the principles of true Keynesian economics (raise rates and run surpluses during booms), or for the need to invoke painful short-term decisions to ensure long-term growth and dollar stability. We are led by the same fools who didn't see the housing collapse coming, who caused it, and now want to take us to Italian and Spanish debt levels, to "solve this". Does this sound like a horror movie yet? It should. We have three options: 1) Continue down the current path, and in 4 years, nationalize Treasury markets and collapse the dollar. This is where we go back to 2nd World living standards. This is exactly where the Keynesian fools are taking us. 2) End all QE, all bailouts, all deficits. Let the economy collapse and ride out a massive depression. We could see a GDP contraction upwards of 20%, but we'd save the dollar, our own asses, and US global hegemony in the process. 3) Invent some type of revolutionary technology, like free energy, faster-than-light travel, or teleportation, that would effectively "soak up" all this outstanding debt, without impacting our living standard in any meaningful way.
America will end up like Greece Monetizing the debt Fake inflation statistics Keynesian never works Currency collapse Makers/takers FURTHER DEBUNKING REINHART & ROGOFF Not surprisingly, BlackRock Liquidates PPIP Fund Earning U.S. Treasury 24%. From Dept of Treasury: What the hell is PPIP, TALF, etc. You people worry too much about what assets are being bought. CPI : MIT's Billion Price Project
And Greece, Spain, Portugal and Italy are figments of the republican "hive mind", invented by Carl Rove. Put down the crack pipe, numbnuts. From the link you posted: "The lesson is simple: We should worry less about debt ratios and thresholds, and more about our inability to see these indicators for the artificial â and often irrelevant â constructs that they are.â LOL tell that to Europe
"It is the Fed's job to keep the Genie at least partway in the bottle. " a person is a virgin in between acts.
No, my statement was to the quality of what was in the portfolio. Here is my statement once more, you can go back to the previous page to verify if you wish. I will italicize the important words to make it easier: I am also not trying to be flippant, but you (and a few others) seem determined to make it appear as if I'm asking something I'm not. Please answer me this one question regarding MBS: If the Fed purchases a Freddie/Fannie guaranteed MBS from a primary dealer, does the Fed create money? Because this is all I am trying to get to in my discussion. Does it create money or not? You mean the market that the Fed has been in control of? I've never argued QE doesn't do anything at all. I've argued that it doesn't stimulate the economy, that it doesn't help unemployment. The Fed has overtly said it will continue QE until unemployment gets back to normal levels - which is sheer stupidity. Maybe, I'll have to go back and see how often this occurs. But I know for a fact I've seen many articles where the Fed has purchased newly issued notes - but it could be that when it happens it's such an issue, so the outcry gives the impression its more often than not. Legit or not, it is still the Fed giving more cash to banks, putting more money into the system. Which, once again, is my entire point of discussion. If inflation presents itself, it will do so quickly (once deleveraging ends - if ever). The Fed can raise rates, but even if it tries to aggressively do so, it will be working against all the cash that has been thrust into the system since the advent of the first QE, so any attempt to raise rates will have a very muted effect at first. Inflation will become firmly rooted into the system and the Fed will be way behind the curve, forcing much higher rates in eventuality, or much higher inflation. Or both. THAT"S ALL I'M SAYING. If you would like to tell me why this is not going to happen, please do so.