I grew up as a little kid in the 80's wondering why ADULTs, grown ADULTs were spending all this money on ICBMs, just to kill each other stupidly. And all it takes is one idiot or malfunction, to exterminate the whole planet. A few years later I 100% understood Carl Sagan when people in his inner circle had pretty much been convinced, that at BEST, maybe 1% of intelligent life won't self-exterminate itself by technology. And even that is being too high a number. The fact we still have not made contact with anyone, or have evidence of anyone else even existing out there in the past (to our knowledge), pretty much attests to this.
Just so you'll know. The Fed has nothing to do with deciding how much new money is created. That's entirely up to Congress.
Once Congress authorizes the Fed to print a certain amount, do you think they sometimes might go a bit overboard and print more than authorized, because after all, it is just a few button-presses on a keyboard? Like a Whoospie moment? Lord knows I would with heavy metal music pumping through the Central Bank's Musak™ feed though the overhead speakers.
That's funny, but actually these things are tightly controlled and the accounting is in the public domain, though portions may see delayed release. It would be hard for the Fed's finger to linger too long on the printer's on button without getting caught. The Treasury might like it though. It would be like you or I checking our bank account and finding we have a few extra hundred billion more than we realized. The amount of new money created equals, to the penny, the Deficit. So if there is no deficit, there is no new money created. If the government runs a surplus, the total amount of money in the private sector decreases by the amount of the surplus, to the penny. Deficits are the mechanism by which new money enters the private sector economy. So you can see why, at minimum, small deficits are needed to accommodate growth in the economy. The Fed does print whenever there is a net overdraft in the Treasuries accounts. But the Fed has no control over the amount printed. This amount is determined by Congress when they decide on the level of taxation and spending. Whenever the Treasury spends in deficit, they subsequently issue securities in the amount of their overdrafts. This is where, for understandable reason, the people get the idea that the Treasury is "borrowing" the amounts it overspends. In realty, the Treasury, unlike what you or I can do, has long since spent and overdrawn its accounts before it issues related securities. Said another way, it spends then appears to borrow. You and I really do borrow, and then we spend. BIG DIFFERENCE!!! In a sense, the Treasury is incapable of overspending; instead it is the Congress that can do it. The Treasury only spends what it has been directed by Congress to spend, and if that happens to be more than the Treasury has in its accounts, then Congress uses the Central bank to "print" any additional needed. Amazingly, deficits by themselves don't result in an increase in the money stock as measured by M2. Why? Well it's because all of that newly "printed" deficit money being spent into the Private Sector is being absorbed and sidetracked into Treasury Securities after it has been created and spent into the economy. We can get a correct understanding of the overall picture if we view Treasury Securities as just another form of U.S. money, albeit an interest paying form! Now, what the Fed does do is determine how much money tied up as Treasuries it wants to convert back into money stock that is easily usable to make private sector payments, and how much to leave sidetracked as securities, and therefore not be a part of M2. The Fed does this by buying and selling Treasury Securities, mainly bonds. When it buys them, the Fed is converting them to bank reserves; when it sells them it is converting reserves back into Treasuries. Understanding this also explains why the Fed always buys and sells securities on the secondary market and does not transact directly with the Treasury. These transactions must take place between the Government, i.e., the Fed, and the Private Sector, because the transactions must register in private sector, reserve accounts for them to have the desired effect. If the Fed transacted directly with the Treasury, the transaction would register in the Treasury's account, defeating the transaction's purpose. It's in making the decision on the ratio of money in the form of Bank Reserves to that in the form of Treasuries that the Fed may make mistakes. Some time back the Fed dropped the reserve requirement and moved instead to regulating interest paid on reserves and the discount rate as it tools of choice to control the funds rate. No one will every accuse the Fed of being overly adventurous, the little bits of creativity they have evidenced has always been in times if crisis, when something simply had to be done. Right now they are determined to cause a recession to stop inflation. Not very imaginative, but what else might they do? The Administrative and Legislative branches of government, however, hold all the wild cards. Sadly divided government has resulted in partial paralysis. There are undoubtedly better ways to tackle the current inflation than intentionally putting a few million out of work -- which, I believe, is going to be more difficult than the Fed realizes under current economic conditions. In any case, implementing better alternatives via Congress would require two functional political parties; currently we only have one.
I don't think so. Congress sets the debt limit, but that's not the money supply. For example, 1) Treasury needs to roll debt over 2) but there are no buyers at current interest rates 3) The FED will step up, buy the debt (with newly created money). And that is why, anyone who says debt doesn't matter in the U.S., is ill-informed, or delusional.
The MMT crowd look like complete idiots now and regime apologist like the one you responded to are trying to save face. The founders didn't even want two parties and the Constitution makes it clear how the money supply is supposed to work.
As a matter of fact, the Fed does not even exercise direct control over even inside money (the temporary money banks create via fractional reserve banking) although the Fed can, and does, influence inside money indirectly via interest rates and other policy decisions. The Fed, however, has absolutely nothing to do with the amount of new outside money created (the semi-permanent money created by Congress when they decide that the government shall spend into the economy more than it taxes back out). The Constitution is very clear on this topic. Only Congress has the power to "coin money." It is simply a crazy myth that the Fed creates money. Even Fed governors have incorrectly referred, from time to time, to the Fed as "printing money". What they really mean by this is that the Fed is trying to convert one kind of money, the interest paying kind, into another kind, the readily spendable kind, i.e., M2. This is what the Fed does. They adjust the ration of M2 money to Bond money. Freely converting M2 to bonds and bonds to M2 according to their current monetary policy. The Fed also orders the bureau of engraving to crank out some bank notes whenever banks ask for them. But this is also not a creation of money. Rather it is again a conversion. In this case a conversion of interest paying bank reserves to non-interest paying reserves, i.e., vault cash. The Fed acts as the Congress's agent by covering Treasury overdrafts, but only Congress gets to determine the size of those overdrafts. It is not the Fed that does that. It is the amount of these overdrafts that determines how much new outside money will be created. Only Congress determines amount. That you and practically all the ETers do not understand these money operations is nothing new. It just means that being a trader doesn't necessarily impart any specialized knowledge of federal money operations. The information you would need to understand these operations is, however, freely available to you. But not without a good deal of study and effort. Edit: I just noticed that I did not address statement "3) in your post. It is natural that when the Fed buys bonds on the secondary market you would, and just about every one else too, wonder where the money comes from to do that. Actually the Fed can, at least in principle, do this until every last bond is bought if there is a need too. To understand where the money comes from to do this you have to recognize what happens when a bond the Fed holds matures. If the bond isn't rolled over, the Treasury will have to credit the Fed with the Principle. And what happens then? That's right, the money just gets credited right back to the Treasury!!!, after expenses of course. You must consider both the Treasury's and the Fed's books to understand the net of this overall procedure. And too, you have to accept that the Fed is a government agency, not private!!!. Don't be like the lunatics that have watched one too many You Tube videos about the Creature from Jekyll Island! The two, Treasury and Fed, must work hand in glove so to speak. In truth, they are each just pieces of the government's overall money operation. The best model to use to explain these operations is a model which lumps the Fed and the Treasury together. Then you are only concerned about money moving back and forth between the private sector and the government sector. The money that does that is all "outside" money. That's one definition of outside money in fact. And one final pieces of the puzzle comes from understanding that when ever the Treasury auctions a new bond the money to buy that bond has already been created, yup "out of thin air, and spent into the economy. We spend first, and then we appear to "borrow" what we just spent.
Ha ha, I like that! Of course like so many other bits of common wisdom, it's wrong. "The common wisdom is almost always wrong." --- Gore Vidal
I admire how you, as a smart man, fight with the stupid herd on ET. I have no energy for doing such a thing anymore. Your posts are always interesting.