here are the answers you requested: 1. It came from the securities exchanged in return for credits. This is something the Fed can do more readily than you or I. It is the near equivalent of you selling me securities and me promising to pay you for them as you need the proceeds (your reserve acount), knowing I can sell the securities you sold me if I need to pay you. But of course I bear the risk of not being able to sell the securities for what I estimate they will be worth in the future. This is a risk the Fed can take but you and I would not want to. 2. The money the Treasury needed for purchases came from bond sales. Your welcome! I noticed from your figure 1 that there was no substantive change in the rate of increase of the CPI due to the great Recession in spite of QE, TARP, etc. A rather miraculous achievement don't you think? Bernanke and company deserves to be praised for this, i.e., negligible expansion of the money supply in spite of QE. Had the Fed instead created money out of thin air, i.e., printed it, inflation would have gone through the roof. A truly remarkable achievement!
a security exchanged for credits. that credit is electronic dollars credited to their accounts. you can't possibly be denying that is the creation of money can you? did you every study money or economics? I am not sure if you are just being leftist or you don't understand this. 2. The money the treasury needed came from bond sales... much of wish were purchased by the fed via the creation of trillions of electronic dollars. Just about everyone on the net understands this... people spin it differently... but you seem to be one of the few people who are denying the fed created the money to buy those bonds... out of thin air. Are your lying trolling or being dense on purpose? 3. you really don't know this subject. look at the chart again... hear his words... there was a massive increase in the base... the electronic dollars with a small increase in the currency. currency is one one form of money. Increasing the base can lead to massive inflation. We already see it in the costs of many of the goods the world competes for. Food and oil clothes are up big
Actually Jem, it amounts to increasing the money supply in circulation, but it isn't the exact equivalent of "printing". When the Fed buys bonds from the Treasury, whether they buy them using cash on hand or create the cash they need, they expand the amount of dollars in circulation. This is standard operating procedure for a central bank. When they sell Treasuries they contract the amount of money in circulation, and this, again, is standard procedure for a central bank. That is what central banks do. What wasn't standard was the amount the Fed bought. When they eventually unwind their excess bond position, they will be contracting the money supply. But Jem, this kind of operation does not meet the economists definition of printing. You can check this out in any econ 101 textbook. I have a stack of texts right here. I just grabbed one at random and looked it up now to make sure I wasn't just pulling this out of my ass. For example here is what I found on page 620 of Mankiw, 1998 edition. (I've got Samuelson and all the rest but Mankiw happened to be on top of the pile.) : "When the government wants to build roads, pay salaries to police officers, or give transfer payments to the poor or elderly, it first has to raise the necessary funds. Normally the government does this by levying taxes, such as income and sales taxes, and by borrowing from the public by selling government bonds. Yet the government can also pay for spending by simply printing the money it needs." Of course the government can also sell bonds to the central bank. When it does that the money in circulation is expanded. (what you're calling "creating money", and that's OK by me. Just don't call it "printing", please. Because when you "print" the new money is NOT tied to debt.) The Central bank can also sell the bonds it bought, and when it does that it decreases the money supply. In one of my posts I explained that in order for the central bank's bond buying to not amount to printing the bonds they bought have to be worth something. Buying worthless bonds amounts to printing. The Fed did not buy worthless bonds! I also explained, previously, why the Treasury could not simply raise 4 trillion in a short period of time by selling bonds to the public. They needed the central bank to step in as a ready buyer. Now as to the Fed buying temporarily illiquid securities from the banks so that the banks could meet their reserve requirement, those securities weren't worthless either! They were just temporarily illiquid. In the case of securities the Fed bought from banks, the money supply was not expanded to the extent that the proceeds credited to the banks remained in their reserve accounts at the Fed. Somehow, the Fed, despite all of this QE stuff, was able to keep the expansion of the money supply to almost a negligible level. Apparently, the Forex market had anticipated that the money supply would increase more than it did, because the dollar was sold. Now, in recognition of reality, the reality being that the money supply did not increase as much as anticipated, the dollar is being bought and we see dollar futures recovering. What I think will happen is that the dollar will rise and the Euro will fall until they are roughly at parity. But like Bill Rogers, my timing tends to be awful, because I had predicted that they could be trading near parity by as early as late Fall or winter 2014. I think i might be off by as much as 2-3 years on that. I have always believed that the ECB would eventually follow in the footsteps of the U.S. Fed. Draghi understands that they need to do this and is trying his best. But he needs the Euro bond to do it properly, and that's going to come over Merkel's dead body. She may be a good physicist and a good Chancellor, but she's a lousy economist.
You pointed out a few things the econ texts said and yet you said "huh" when you replied to my last post. As is underlined in your response, the treasury does not need to "raise" any money in order to spend what they have budgeted. They spend first, then raise the money later when they issue bonds. The banks already are in possession of the money that the treasury spent and then they buy the bonds, so all of that deficit spent money is no longer in cash or reserves any longer. If the treasury would have sold the bonds directly to the federal reserve, it is called monetizing the debt. You can look it up on the internet if you can't find it in those leftists textbooks. What this means is that the fed pecked their keyboards and bought the bonds, and the money that was in the banking system from the deficit spent by the gov't remains in cash. So the deficit spending increased the money supply. If the commercial banks had bought the bonds, it would have soaked up the money that had been deficit spent by the gov't. Now, if the commercial banks bought the bonds, and then the federal reserve buys them from the commercial banks, it is the same monetizing of debt that would have happened if the fed had bought them in the first place. It just added another step. Part of the confusion is that the fed had previously bought and sold treasury bills to adjust the fed funds rate and so that wasn't considered monetizing the debt because they were just trading them back and forth. It's when the fed is buying bonds to hold to maturity that it is considered monetization. And of course the economists who have been in favor of all this madness say that the fed is going to sell the three trillion dollars of bonds back to the commercial banks so it isn't monetizing the debt. Who that has a brain believes that? Let's get this straight. The federal reserve is never going to sell the three trillion dollars of bonds back. Maybe they sell a few tens of billion as a dog and pony show to fool people and make it look like they are considering selling all three trillion. But they are never going to unloose all those three trillion of bonds on the market. The debt has been monetized. Another issue is this thing of you saying that money hasn't been printed if there are bonds. That is the purpose of the Treasury selling bonds to soak up the money that is already in the commercial banks from the gov't's deficit spending. But if the bonds are purchased directly by the federal reserve, or if the bonds have been purchased by the commercial banks and then bought from them by the federal reserve, then the cash is still in the banking system from the gov't deficit spending and money has been printed. That's why it's called monetizing the debt. And the dollar is not just a function of what we do, it's a function of what we do relative to what other countries do. If we trash our dollar and they trash their currency worse, the US dollar would go up. The reason the money supply is not rising is PEOPLE DON'T WANT MORE MONEY, they want to extinguish debt. If total money supply is not going up when the gov'ts and central banks are printing money, then the private markets are not seeking loans. They are extinguishing loans. They don't want more money, obviously because they can't make money off of leverage. Thats why they are extinguishing their debt and not borrowing more. But when several billion people don't want to take out more debt because it is not profitable, we have a few hundred people in gov't and central banks saying, "oh yes you are going to borrow, and if you won't do it yourself, we are going to do it for you via deficit spending and monetizing the debt by having it wind up on the balance sheets of the central banks." Because the citizens are ultimately responsible for paying off the public debt. Loading up the gov'ts and central banks with trillions of dollars of debt and then promising to pay it down later is just ridiculous. It's hard for me to believe that anyone falls for it. Have you noticed Japan? If anyone looks at Japan and still can't see where this is heading for us if we do the same thing, they just aren't thinking. Merkel doesn't want to be a stooge along with the rest of the western world's gov'ts. Private citizens don't want more debt, so the gov'ts are loading up on the debt that private citizens don't want and the fed is helping them via qe and also by financial repression of zirp. The reason they need qe and zirp is because the debt has no utility on it's own. If it did, they wouldn't need these gimmicks to make it work. We are loading up on debt that is of no value. It is not an investment, because if it was the gov't could pay a market rate on it. It is flushing money down the toilet and the proof of that is because they need to pay zero interest on it to make it work. enuf already