The Coming Revolution: Evolutionary Leap or Descent Into Chaos and Violence?

piezoe · Nov 2, 2014

Lucrum said:
I'm good with that part. Except Ben DID say what the fed is doing IS akin to printing. Your opinion is duly noted. But I'm going with the former chairman on this one.
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I'll accept that. You remain your usual magnanimous self.

Lucrum · Nov 2, 2014

Lucrum · Nov 2, 2014

fhl · Nov 2, 2014

piezoe said:
There is a very important distinction between printing and regular Treasury- Fed Operations. Bernanke was right when He said they weren't printing . But he should have stopped at that point, because he confused a lot of people when he said that what they were doing was akin to printing, but not exactly.. There is a common misconception that what the Fed was doing was the exact equivalent of printing. It wasn't. The distinction is this, and it is a very important distinction. Both printing by the Treasury and bond purchases by the Fed can by used to inject new money into the economy. Technically any time the mint, which is under the Treasury, not the Fed, turns on the presses, that's printing. But printing is not normally used to expand the money supply beyond what is justified by population, gdp growth, and destruction of old currency. Printing is not how the money supply is normally expanded and contracted. That is done by the Fed buying and selling Treasury bonds on the secondary market. Printing allows no reverse mechanism, other than, I suppose, burning money in a bonfire. However expanding the money supply by buying bonds allows the money supply to be contracted later by selling the bonds that were bought. Buying and selling Treasury bonds is just a normal everyday operation that all well managed Central banks do, and it is not called printing by economists, because it isn't printing. And it certainly is not the exact equivalent of printing. Printing to pay a government's debts is only done as a desperate measure when the government's bonds are virtually worthless. Printing leads to hyperinflation. We haven't had any hyperinflation, and if you look at the money supply during QE you will see that it was well contained. Had the Fed been doing the exact equivalent of printing, you would have seen hyperinflation!

Both printing and Fed Bond buying can expand the money supply, and in that way only they are equivalent. Printing and Fed bond buying both involve the "creation of money out of thin air", as y'all like calling it, however the money "created" by the Fed is created only temporarily because when the Fed's bonds are later sold the money pumped into the economy is taken back out. I don't like to use the expression "created out of thin air", though it grabs one's attention, because it's inaccurate. Actually that's what happens if a government "prints". Then it truly does create money out of thin air. It is more accurate, and less misleading, to recognize that the Fed creates money in exchange for securities. Every dollar pumped into the economy by the Fed's bond buying is tied to debt, and therefore money supply expansion can be reversed later when the Fed's securities are sold. When money is printed, it is not tied to debt! You did not see any hyperinflation, because the Fed was NOT doing the exact equivalent of printing. If inflation heats up, the Fed can sell bonds, raise the discount rate or even increase the bank reserve requirement. And they can cool off market bubbles by increasing the margin requirement. (IMO Greenspan should have used this tool during the tech bubble, along with regulating mortgages of course.) The Fed has more than enough arrows in its quiver to handle most any situation, so long as Treasury bonds remain attractive to buyers at reasonably low interest.

The Fed did not "print" despite what a thousand talking heads on talk radio say, ten thousand videos on youtube claim, or how many creatures have been sighted on Jekyll Island. None of these folks understand the difference between expanding the money supply by printing and expanding it by buying bonds.
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Contrary to what you say, the Fed has not been regularly engaged in buying and selling bonds. They have been regularly engaged in buying and selling bills to affect the fed funds rate. Buying bonds is an entirely new operation that they just started a few years ago. They gave it a name. Quantitative easing. And it creates money out of thin air. Why anyone wants to engage in a symantic argument over whether it is creating or printing I have no idea. There is more money. Period.

And notice I didn't say buying and selling bonds the same way I said buying and selling bills. Because they HAVE NEVER SOLD A BOND. OK? You seem to want to take for granted that they will sell the three trillion of bonds just like they used to sell a few tens of billions of bills historically. And the only reason that you choose to believe that absurd notion is because both you want to, and that because the krugmans et al push that notion for their political spin.

Also, you need to get this "tied to debt" thing out of your thinking. The money we are talking about is not "tied to debt". Try to understand this. The Treasury spends money. That money is then in the commercial banking system. The Treasury then issues bonds to soak up that money so as not to increase the money supply. It is not "tied to the debt". And when the federal reserve then buys those bonds, the commercial banks then have their cash or reserves back, just as if the the Treasury had never issued any bonds in the first place.

What makes you certain that the fed can sell three trillion dollars of bonds? They have never done anything like that before. And since they haven't, it should be considered monetization of the debt, just as i heard a federal reserve governor call it. There is no reason what soever that we should believe otherwise.

You are aware that after qe1, they said they were done and weren't going to do it anymore, right?
And after qe2, they said they were done, and not going to do it anymore, right?
And now, when they make an absolutely absurd assertion, that they are going to sell these three trillion and so it shouldn't be considered monetization, we're supposed to believe that?

I sure don't.

jem · Nov 2, 2014

First let me say well explained... fhl.
now I want to make a few things clear.

1. The Fed created money out of thin air. Bernanke stated it was technically not printing. But when you see his expression and see it in context... he knows creating money with a keystroke is just the modern day version of saying printing. So Piezoe stop trying to make a distinction without a difference and act like you are saying something important.

2. For a short time under JFK the US was concurrently making debt free US Notes...
Lincoln also made debt free notes. However the money being printed today are Federal Reserve notes... printed according to the dictates of the Fed.

3. Therefore this statement by Piezoe is highly misleading... "Technically any time the mint, which is under the Treasury, not the Fed, turns on the presses, that's printing".
Currency is printed per Federal Reserve order not US govt order. The treasury prints Federal Reserve notes... not US notes.

4. You have reversed the meaning of "Printing out of thin air" by referring to the technical definition of printing. It is deceitful misdirection. The US govt is not the source of the devaluation of the dollar. The spending by the US govt was tied to debt. It is not the printing we are concerned with here.

When money is printed out of thin air by the Fed it has been very inflationary.
That is why the dollar has devalued 96% since the FED started.
Its why the FED does not even track M3 for us anymore.
And you have only been discussing one kind of creating money out of thin air by the FED.

This is the result of all the devaluation activities... and the FEDs printing sucked the wealth out of the US working class and transferred it to the cronies.

fhl said:
Contrary to what you say, the Fed has not been regularly engaged in buying and selling bonds. They have been regularly engaged in buying and selling bills to affect the fed funds rate. Buying bonds is an entirely new operation that they just started a few years ago. They gave it a name. Quantitative easing. And it creates money out of thin air. Why anyone wants to engage in a symantic argument over whether it is creating or printing I have no idea. There is more money. Period.

And notice I didn't say buying and selling bonds the same way I said buying and selling bills. Because they HAVE NEVER SOLD A BOND. OK? You seem to want to take for granted that they will sell the three trillion of bonds just like they used to sell a few tens of billions of bills historically. And the only reason that you choose to believe that absurd notion is because both you want to, and that because the krugmans et al push that notion for their political spin.

Also, you need to get this "tied to debt" thing out of your thinking. The money we are talking about is not "tied to debt". Try to understand this. The Treasury spends money. That money is then in the commercial banking system. The Treasury then issues bonds to soak up that money so as not to increase the money supply. It is not "tied to the debt". And when the federal reserve then buys those bonds, the commercial banks then have their cash or reserves back, just as if the the Treasury had never issued any bonds in the first place.

What makes you certain that the fed can sell three trillion dollars of bonds? They have never done anything like that before. And since they haven't, it should be considered monetization of the debt, just as i heard a federal reserve governor call it. There is no reason what soever that we should believe otherwise.

You are aware that after qe1, they said they were done and weren't going to do it anymore, right?
And after qe2, they said they were done, and not going to do it anymore, right?
And now, when they make an absolutely absurd assertion, that they are going to sell these three trillion and so it shouldn't be considered monetization, we're supposed to believe that?

I sure don't.
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Lucrum · Nov 2, 2014

jem said:

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Someone explain to me again how the fed isn't responsible for decades of the inflation Ricter and co. claim don't exist.

jem · Nov 4, 2014

One other point... if the Fed did not create the money out of thin air... where did the money come from to buy 4.5 trillion in assets? That is 4.5 Trillion? That is and enormous amount of treasuries and gse crap.

The money did not from Congress.