Posted on 10/17/2018 2:09:24 PM PDT by bananaman22
QE ended 4 years ago. We had basically 0% rates from 2009-2015 and we still had sub 2% inflation. Now with the balance sheet shrinking and the Fed Funds rate over 2%, I don't really think high inflation is on the way, do you?
Any links to explain your claim that the Fed's actions were incredibly expensive?
Money supply numbers used to be broken down as M1, M2, M3.
Part of M3 was “near money” including T-Bills.
Now when Congress raises the debt limit, doesn’t the M3 money supply increase by an equal amount?
And if so, wouldn’t this be more of risk for inflation than what the Fed is doing?
If you want to get picky, the money the Fed earned on the balance sheet reduced the need for borrowing by over $500 billion since 2009.
Yeah, the government should spend less. A lot less. If we're at "full employment" or "operating at capacity", extra stupid government spending could cause price increases.
“I didn’t think it was that useful before.”
Apparently you weren’t alone or it wouldn’t have been dropped.
I was just curious about whether or not there is an inflationary potential from raising the national debt.
IIRC during the ‘70s the William Miller Fed was monetizing new Treasury paper right as it was being issued and that was considered to be one of the drivers of the ‘70s inflation.
“I didn’t think it was that useful before.”
Apparently you weren’t alone or it wouldn’t have been dropped.
I was just curious about whether or not there is an inflationary potential from raising the national debt.
IIRC during the ‘70s the William Miller Fed was monetizing new Treasury paper right as it was being issued and that was considered to be one of the drivers of the ‘70s inflation.
Everything I've seen says yes.
The balance sheet, at an historic level due to QE & Operation Twist is something we’ve never faced before. MAYBE it’ll turn out OK. I don’t want to live through Stagflation again.
“I don’t want to live through Stagflation again.”
If you recall some of those elementary graphs from Econ 101, the cure for stagflation was getting the “production possibility frontier” to shift to the right. That curve shift looks something like this, just ignore the labels:
That was “supply” part of supply-side economics. Shifting the curve right increases the capacity of the economy
The old Keynesian formula for stimulating the economy is to boost demand. Government spending, tax cuts, lowering interest rates all will do that. And that does work a lot of time, but in ‘70s any demand stimulus to the economy was going straight to an increase in prices. Inflation.
Some Congressional staffers like Paul Craig Roberts argued that this was due to supply constraints on the economy, and they advocated policies that would allow the PPF curve to shift right- deregulation, investment tax credits, lower capital gains taxes. Reagan adopted it for his economic program. Adding Volcker’s Fed policy of choking the growth of the money supply to death to the mix we had the collapse of inflation and and the dramatic GDP growth of the 80s.
Tax cuts are NOT part of the Keynesian model. The Supply Side solutions of tax cuts and deregulation are what ENABLED producers to do the things they wanted to do in order to create wealth.
Supply Side economics don’t work because the central government “does something”. Supply Side works because the government gets out of the way.
Once again, if $4 Trillion isn’t expensive I don’t what is.
Not a single taxpayer dollar was harmed in the expansion of the spreadsheet. The Treasury made hundreds of billions.
Is that what you mean by expensive? Reduced the debt by hundreds of billions?
“Tax cuts are NOT part of the Keynesian model.”
I’ve seen it acknowledged as Keynesian by some supply side writers. Pretty sure Paul Craig Roberts. Keynes is demand stimulus and that’s what tax cuts do.
Yes, tax cuts and/or increased spending is Keynes stimulus.
I’ve heard folks say Elvis and Bigfoot had a baby. Doesn’t make it so. Keynesian economics does not incorporate tax cuts into their demand side theories.
Are you arguing just to argue? I’ve stated the facts of the situation repeatedly. Not my fault if you don’t understand what I am saying.
It seems you have none.
You are confusing “expensive” from the spending of tax receipts to that of the creation of an additional $4Trillion of debt “expensive”. As I have explained. Repeatedly. Your problem, not mine.
Well, if it doesn't cost any tax dollars, in fact it saved us hundreds of billions, then I don't see it as expensive.
to that of the creation of an additional $4Trillion of debt “expensive”.
The Fed didn't create any of the debt they bought.
I disagree with your assertion that the debt created by QE and Operation Twist “saved” a single dollar. That debt was created out of thin air by the Fed as they monetized that debt.
As I said before, not my problem if you still don’t understand after being presented with the facts.
Thanks, I finally understand your confusion.
The Fed currently holds $2.294 trillion in US Treasury securities and $1.682 trillion in guaranteed MBS. Those bonds pay interest and over 70% those earnings last year were paid to the US Treasury. $80 billion in 2017 alone.
That debt was created out of thin air by the Fed as they monetized that debt.
You are mistaken. Home owners already had the mortgages that were securitized by Fannie and Freddie before the Fed came along and bought the finished product.
The federal government had already done the wasteful spending that caused the US Treasury to issue bonds and notes before the Fed came along and bought some of them.
Those debts are already out there, whether the Fed buys them or not.
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