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Message
re: What is your outlook on the economy?
Posted on 9/11/14 at 1:40 pm to wdhalgren
Posted on 9/11/14 at 1:40 pm to wdhalgren
quote:
So, yes it's a problem, but it won't happen because the federal reserve will keep interest rates below inflation, which will destroy the dollar at an accelerating pace.
This is akin to saying, I have cancer, and I don't want to die from cancer, so I'll just kill myself instead. And while you are correct... it's not exactly a positive thing.
1
Posted on 9/11/14 at 1:45 pm to Shepherd88
quote:
Sorry, gotta disagree with you, corporate profits have not been inflated due to QE. My point was that money that the federal reserve used to purchase bonds is still sitting there in cash, banks are still not lending like that once were.
The US federal government has run an approximately $8 trillion dollar deficit in the last six years, money which they used to pay out to citizens in the form of wages and benefits. The federal reserve created enough new money to finance half of that, and they also drove short term interest rates to zero, which allowed banks to finance the rest, since banks could borrow at 0% and lend to the government at some positive yield.
Now, consider this scenario; the fed doesn't print money beginning in 2009, no QE. The US government would have had to borrow from people, not the fed's printing press. That means investors would have to be enticed to lend to the US government, and they wouldn't have done it such low rates. Money would have been diverted from other sectors of the economy, or taxes would have been raised. Or the government would have had to spend less, cut benefits, lay off public employees. All of that would have crushed any semblance of what we're calling an economic recovery, and it doesn't even include the significant impact that higher interest rates would have had on corporate borrowers.
Finally, you seem infatuated with the fact that bank balance sheets have risen. Of course they have, it's new money. Even if the banks lend it out, it still ends up in another bank somewhere. When the government sends it out as a unemployment check, it gets spent and ends up in a bank somewhere. The fact that banks are holding excess reserves doesn't mean that money printing had no stimulus effect on financial asset prices. It did, and always does in every instance in every country where it's been used. Like I said, pull up charts of countries that have monetized their debt.
This post was edited on 9/11/14 at 1:51 pm
Posted on 9/11/14 at 1:46 pm to LSUFanHouston
quote:
This is akin to saying, I have cancer, and I don't want to die from cancer, so I'll just kill myself instead. And while you are correct... it's not exactly a positive thing.
That's my point. There are no positive outcomes here.
Posted on 9/11/14 at 2:37 pm to wdhalgren
quote:
Muddle along for an extended period
Posted on 9/11/14 at 3:31 pm to wdhalgren
See here's where you're wrong. The Fed is not literally "printing money" through a printing press as your "better buy Gold now" commercials may have you believe. LINK
And again, my point was in the first place, the banks are NOT lending that money out like they once were. Therefore that money is NOT getting spent. Therefore that money is NOT inflating corporate profits.
Unemployment checks have nothing to do with the reserve build up. In your scenario, your claiming all this money that the fed is giving out is going into the pockets of consumers via lending and being spent which is not the case.
And again, my point was in the first place, the banks are NOT lending that money out like they once were. Therefore that money is NOT getting spent. Therefore that money is NOT inflating corporate profits.
Unemployment checks have nothing to do with the reserve build up. In your scenario, your claiming all this money that the fed is giving out is going into the pockets of consumers via lending and being spent which is not the case.
Posted on 9/11/14 at 5:26 pm to Shepherd88
quote:
The Fed is not literally "printing money" through a printing press
I understand what the federal reserve is doing. They "print money" simply by debiting an account on a computer. I use the term "print" or "printing press" because it's more transparent than "quantitative easing" or some other technical term to hide the meaning.
quote:
the banks are NOT lending that money out like they once were. Therefore that money is NOT getting spent. Therefore that money is NOT inflating corporate profits.
That newly created money is being spent the minute the federal government spends it. The banks buy bonds from the US Treasury, the fed then buys them from the banks using newly created money. The net effect is that the US government spends newly created dollars and they are used by recipients to buy corporate products. Of course the new money is going to consumers, via government spending.
"Monetary easing", which is how the federal reserve "stimulates" the economy, is essentially a fancy phrase for increasing the money supply. It can take two forms, which correspond to the two methods that money is created in our banking system. The traditional form of monetary easing, used from 1913 to 2008 was to lower short term interest rates, which would generally serve to lower borrowing costs throughout the economy at various maturities and risk levels. That in turn, would stimulate commercial bank lending and thereby growth of the money supply.
In 2008, the fed reached the zero bound in short term rates, and then they shifted to another form of "easing", Quantitative easing. QE increases the money supply via direct money creation at the Federal reserve. It doesn't require bank lending to "stimulate" money supply growth, because the fed can simply conjure unlimited dollars into existence at any time without cooperation from banks, borrowers, lenders, or anyone else.
Both types of monetary easing have a similar end effect, increasing the money supply, which both drives asset prices higher and stimulates (for a short time) economic activity. This is a very well documented concept and it has been repeatedly observed across numerous instances. The last two bubbles in US assets, a late 1990's stock bubble and a mid 2000's housing/stock bubble were both a result of excessive monetary easing which inflated asset prices. What's happening now is the same phenomenon caused by a slightly different form of monetary easing, QE.
The difference between the two forms of monetary easing (lowering interest rates and QE) is one of degree. When an economy reaches the point that the central bank has to directly create new high powered money to prevent defaults and "stimulate growth" (which is not really growth), then the central bank loses its ability to reverse the process. The debt has become too extreme. As Ben Bernanke said, "A determined central bank with a printing press can always create inflation". What he left unsaid, is that it cannot always reverse the process once initiated.
This post was edited on 9/11/14 at 5:28 pm
Posted on 9/11/14 at 5:34 pm to wdhalgren
I'm going to have to work backwards on your posts here to catch up.
6.2T
There is a ridiculously expansive laundry list of federal expenses from different payment mechanisms whether it be the Fed wire, their payment system for contractors, or their stupid archaic system for federal workers. Claiming they used their 6T deficit to pay citizens may be marginally true at best.
The goal of the Fed was not to finance the deficit. That is an unfortunate moral hazard and one I do agree with Fed bashers on, but they don't like doing it as much as we don't since they essentially sooth politicians into thinking they don't have to make actual decisions on structural changes which are politically painful.
They did drive yields to the zero bound, but the rest is just absolutely untrue. Banks can borrow at 0 or even better if specific securities are trading "special" but that's about it. Even the market Fed Funds rate is a lot higher for real banks, the only reason that it prints as low as it does everyday is from the FHL banks lending to each other.
That is a very huge assumption you're making. What about the scenario where the Fed doesn't begin QE in 2008, and the global financial system goes into further shock. The flight to quality could bring the entire yield curve to neg/zero. Similar thing happened in 2011, S&P downgraded the US debt to AA+ and yield curve rallied/flattened. Demand will find its way for Treasuries, especially with the move to central clearing as they require high quality collateral for any and all margin.
Everything in here is either an assumption or an extrapolation based on an assumption. The only thing I agree with you here on is that QE did in fact help create a recovery, and not a "semblance" of one. This may be the hardest time period to sell good news I've ever seen. The US is in the best shape of any developed country BY FAR.
I 100% agree that QE has helped buoy financial prices, but there is this notion throughout this thread I really need to address. "Bank balance sheets have risen" is only true regarding reserves on bank balance sheets. Post crisis regulation has absolutely nuked what we in the market call "dealer balance sheet", which is actual positions and securities (whether it be risk, repo, financing, etc.). It's so bad that dealers often times are no longer market makers, more so brokers. Also the notion that banks aren't lending is not true at all, commercial and industrial loans are actually sitting around their pre-crisis average over the past year.
Which charts?
quote:
The US federal government has run an approximately $8 trillion dollar deficit in the last six years
6.2T
quote:
money which they used to pay out to citizens in the form of wages and benefits.
There is a ridiculously expansive laundry list of federal expenses from different payment mechanisms whether it be the Fed wire, their payment system for contractors, or their stupid archaic system for federal workers. Claiming they used their 6T deficit to pay citizens may be marginally true at best.
quote:
The federal reserve created enough new money to finance half of that
The goal of the Fed was not to finance the deficit. That is an unfortunate moral hazard and one I do agree with Fed bashers on, but they don't like doing it as much as we don't since they essentially sooth politicians into thinking they don't have to make actual decisions on structural changes which are politically painful.
quote:
they also drove short term interest rates to zero, which allowed banks to finance the rest, since banks could borrow at 0% and lend to the government at some positive yield.
They did drive yields to the zero bound, but the rest is just absolutely untrue. Banks can borrow at 0 or even better if specific securities are trading "special" but that's about it. Even the market Fed Funds rate is a lot higher for real banks, the only reason that it prints as low as it does everyday is from the FHL banks lending to each other.
quote:
US government would have had to borrow from people, not the fed's printing press. That means investors would have to be enticed to lend to the US government, and they wouldn't have done it such low rates.
That is a very huge assumption you're making. What about the scenario where the Fed doesn't begin QE in 2008, and the global financial system goes into further shock. The flight to quality could bring the entire yield curve to neg/zero. Similar thing happened in 2011, S&P downgraded the US debt to AA+ and yield curve rallied/flattened. Demand will find its way for Treasuries, especially with the move to central clearing as they require high quality collateral for any and all margin.
quote:
Money would have been diverted from other sectors of the economy, or taxes would have been raised. Or the government would have had to spend less, cut benefits, lay off public employees. All of that would have crushed any semblance of what we're calling an economic recovery, and it doesn't even include the significant impact that higher interest rates would have had on corporate borrowers.
Everything in here is either an assumption or an extrapolation based on an assumption. The only thing I agree with you here on is that QE did in fact help create a recovery, and not a "semblance" of one. This may be the hardest time period to sell good news I've ever seen. The US is in the best shape of any developed country BY FAR.
quote:
Finally, you seem infatuated with the fact that bank balance sheets have risen. Of course they have, it's new money. Even if the banks lend it out, it still ends up in another bank somewhere. When the government sends it out as a unemployment check, it gets spent and ends up in a bank somewhere. The fact that banks are holding excess reserves doesn't mean that money printing had no stimulus effect on financial asset prices. It did, and always does in every instance in every country where it's been used.
I 100% agree that QE has helped buoy financial prices, but there is this notion throughout this thread I really need to address. "Bank balance sheets have risen" is only true regarding reserves on bank balance sheets. Post crisis regulation has absolutely nuked what we in the market call "dealer balance sheet", which is actual positions and securities (whether it be risk, repo, financing, etc.). It's so bad that dealers often times are no longer market makers, more so brokers. Also the notion that banks aren't lending is not true at all, commercial and industrial loans are actually sitting around their pre-crisis average over the past year.
quote:
Like I said, pull up charts of countries that have monetized their debt.
Which charts?
Posted on 9/11/14 at 5:37 pm to wdhalgren
You just stated what QE was, you did not prove what I pointed out. That money is not circulating in the consumer economy, which it's not.
You also tried to compare third world and communist economies to the largest free economy in the world as well. I'm done.
You also tried to compare third world and communist economies to the largest free economy in the world as well. I'm done.
Posted on 9/11/14 at 5:47 pm to BennyAndTheInkJets
Okay, lots of points there and I'll try to address them one by one.
Here is the what the US treasury says about total public debt outstanding.
Sept 1 2008 - $ 9.668 Trillion
Sept 1 2014 - $ 17.749 Trillion
LINK
Accouting chicanery aside, our budget deficit for that 6 year period was slightly more than $8 trillion dollars.
quote:
6.2T
Here is the what the US treasury says about total public debt outstanding.
Sept 1 2008 - $ 9.668 Trillion
Sept 1 2014 - $ 17.749 Trillion
LINK
Accouting chicanery aside, our budget deficit for that 6 year period was slightly more than $8 trillion dollars.
Posted on 9/11/14 at 5:50 pm to wdhalgren
quote:
I understand what the federal reserve is doing. They "print money" simply by debiting an account on a computer. I use the term "print" or "printing press" because it's more transparent than "quantitative easing" or some other technical term to hide the meaning.
I wouldn't consider a term that convolutes the actual definition more transparent than a "technical term".
quote:
That newly created money is being spent the minute the federal government spends it. The banks buy bonds from the US Treasury, the fed then buys them from the banks using newly created money. The net effect is that the US government spends newly created dollars and they are used by recipients to buy corporate products. Of course the new money is going to consumers, via government spending.
You're looking at things in a vacuum here. If the Fed, banks, and the Treasury were the only players in the Treasury market, then yes, all of this would be the case. But it's not and there are a frick ton of other players in the market. Asset managers, foreign banks, anybody with an indirect or direct bid on auctions can finance the deficit. You're implying we have a 1 for 1 monetization here.
quote:
"Monetary easing", which is how the federal reserve "stimulates" the economy, is essentially a fancy phrase for increasing the money supply. It can take two forms, which correspond to the two methods that money is created in our banking system. The traditional form of monetary easing, used from 1913 to 2008 was to lower short term interest rates, which would generally serve to lower borrowing costs throughout the economy at various maturities and risk levels. That in turn, would stimulate commercial bank lending and thereby growth of the money supply.
The Fed Funds target rate wasn't even use as a monetary policy tool until 1990 (and they didn't even announce the target until 1994). Before that it was reserve requirements, and the Fed in its current form with the FOMC didn't even exist until 1934.
quote:
In 2008, the fed reached the zero bound in short term rates, and then they shifted to another form of "easing", Quantitative easing. QE increases the money supply via direct money creation at the Federal reserve. It doesn't require bank lending to "stimulate" money supply growth, because the fed can simply conjure unlimited dollars into existence at any time without cooperation from banks, borrowers, lenders, or anyone else.
You do know that the Fed doesn't force banks to sell Treasuries right? A level of cooperation always exists here with monetary operations. They just so happen to be dealing in two of the world's most liquid markets.
quote:
Both types of monetary easing have a similar end effect, increasing the money supply, which both drives asset prices higher and stimulates (for a short time) economic activity. This is a very well documented concept and it has been repeatedly observed across numerous instances. The last two bubbles in US assets, a late 1990's stock bubble and a mid 2000's housing/stock bubble were both a result of excessive monetary easing which inflated asset prices. What's happening now is the same phenomenon caused by a slightly different form of monetary easing, QE.
Are you implying that monetary easing was the primary cause of the 90's tech bubble and '08 crisis? While the Greenspan Fed definitely didn't help curb the issue, they were far from being the primary reason for the bubble.
quote:
The difference between the two forms of monetary easing (lowering interest rates and QE) is one of degree. When an economy reaches the point that the central bank has to directly create new high powered money to prevent defaults and "stimulate growth" (which is not really growth), then the central bank loses its ability to reverse the process. The debt has become too extreme. As Ben Bernanke said, "A determined central bank with a printing press can always create inflation". What he left unsaid, is that it cannot always reverse the process once initiated.
Explain how it is not really growth. If hiring is rising and commerce is expanding how is this growth "fake"? Also explain how they have the inability to reverse the process. Are they not doing this right now? Is QE not scheduled to end in the Oct FOMC meeting? Has the market not priced in mid-2015 hikes? The Fed won't sell their balance sheet but they absolutely will supply the market with collateral via the reverse-repo facility. That reminds me, I haven't bumped that thread in a while and there have been a lot of things that have happened recently with the FRFA RRF.
Posted on 9/11/14 at 5:54 pm to BennyAndTheInkJets
quote:
There is a ridiculously expansive laundry list of federal expenses from different payment mechanisms whether it be the Fed wire, their payment system for contractors, or their stupid archaic system for federal workers. Claiming they used their 6T deficit to pay citizens may be marginally true at best.
Salaries, wages, benefits, pensions, medicare, compensation to corporations for weapons, who in turn used it to pay the salaries of their workers. Whatever. The end result is that the US government spent $8 trillion more than it raised in revenues. That money was used to generate economic activity. Approximately half of that amount came via "printing press". Not sure I understand your argument.
Posted on 9/11/14 at 5:57 pm to wdhalgren
quote:
Here is the what the US treasury says about total public debt outstanding.
The debt and deficit are two different things, to which I wouldn't consider accounting chicanery. The result of Gramm-Rudman-Hollings was, but the Treasury will sometimes roll debt for sheer market and collateral reasons regardless of deficits. If you're just referring to off-balance sheet items specifically then yea I can get on board with the "chicanery" line.
Posted on 9/11/14 at 5:58 pm to BennyAndTheInkJets
quote:
The goal of the Fed was not to finance the deficit.
The fed's stated goal was irrelevant. Governments justify their actions using lots of excuses, but the federal reserve is monetizing government debt. The action supercedes the words used to explain it away.
Posted on 9/11/14 at 6:06 pm to wdhalgren
Shadowstats is a good website. 
I also subscribe to Austrians conomics.
I also subscribe to Austrians conomics.
Posted on 9/11/14 at 6:07 pm to BennyAndTheInkJets
quote:
They did drive yields to the zero bound, but the rest is just absolutely untrue. Banks can borrow at 0 or even better if specific securities are trading "special" but that's about it.
Go down to your bank and ask how much interest they'll pay you for a savings account. You will have to lend to your bank at something approaching zero, unless you buy a long term CD, etc. Now you may say that the banks can't use that money to buy government bonds, but a dollar is fungible. Banks, insurance companies, etc., are buying bonds with short term debt at a lower yield. It's a global carry trade being financed by multiple central banks simultaneously. There's no way that investors of any stripe would be buying extended maturities of bankrupt government debt at or below the rate of inflation, unless they were being funded at a lower cost. If the federal reserve allows short term rates to rise, longer term rates will rise also and tens of trillions of outstanding debt will lose value.
Posted on 9/11/14 at 6:15 pm to BennyAndTheInkJets
quote:
That is a very huge assumption you're making. What about the scenario where the Fed doesn't begin QE in 2008, and the global financial system goes into further shock. The flight to quality could bring the entire yield curve to neg/zero. Similar thing happened in 2011, S&P downgraded the US debt to AA+ and yield curve rallied/flattened. Demand will find its way for Treasuries, especially with the move to central clearing as they require high quality collateral for any and all margin.
You need to go back and read the thread. The other poster said QE buying of bonds wasn't causing stock prices to rise. Assuming your scenario is accurate, and I agree to limited extent, clearly the S&P 500 would not be residing at all time highs today. Secondly, if things had occurred as you submit, I submit that the US government would have been forced into default in very short order, so interest would not have fallen they would have risen.
Read up on types of interest rate risk, and then consider the parlous state of US government finances and the dependency of our economy on government spending in the aftermath of 2008.
Posted on 9/11/14 at 6:24 pm to BennyAndTheInkJets
quote:
quote:
Money would have been diverted from other sectors of the economy, or taxes would have been raised. Or the government would have had to spend less, cut benefits, lay off public employees. All of that would have crushed any semblance of what we're calling an economic recovery, and it doesn't even include the significant impact that higher interest rates would have had on corporate borrowers.
Everything in here is either an assumption or an extrapolation based on an assumption. The only thing I agree with you here on is that QE did in fact help create a recovery, and not a "semblance" of one. This may be the hardest time period to sell good news I've ever seen. The US is in the best shape of any developed country BY FAR.
What assumptions? That money would have been diverted otherwise? If the government hadn't borrowed from the fed, they'd have had to borrow from somewhere else, trillions of dollars. Or spend less. It has to come from somewhere. Why is that an assumption? Are you saying that raising taxes, or cutting government spending wouldn't have hampered this "recovery"? That's patently wrong. We had to do one or the other, borrow more, spend less, raise more, or print money. Where's the assumption?
As for QE helping create a real recovery, it's the same as every other recovery of the last 30 years. We'll need more stimulus, more printing, more negative real interest rates when it wears off. Increasing the money supply is not a proxy for increasing wealth. If it was, there would be no need for the word "poverty" in the human language. We're in a long term vicious cycle of monetary debasement that always ends the same way.
It's true in economics as in nature, there is no such thing as a free lunch. You can't hit a button on a computer in the NY Fed basement and fix a financial system on the verge of bankruptcy. All that does is transfer the pain a bit down the road.
This post was edited on 9/11/14 at 6:33 pm
Posted on 9/11/14 at 6:31 pm to BennyAndTheInkJets
quote:
Which charts?
I was referring to stock index charts and their correlation with money supply growth. The four I listed earlier were Argentina, Zimbabwe, Venezuela, and Weimar Germany. Asset prices lose their value as an economic predictor when governments begin to debase their currency.
Posted on 9/11/14 at 6:32 pm to wdhalgren
I'm going to respond to your other posts but this one needed one first.
That isn't my scenario, my scenario was that you said yields would be higher if the Fed didn't do QE. My point was that you a making a major assumption that may not be true given a flight to quality scenario. QE supports the S&P, that's pretty much a given. My point is that you were making way too many assumptions regarding interest rates.
Again, assumptions. If there was a giant flight to quality the US is still in the best shape of any developed country. Which other country's debt would you feel safer with? In a global financial meltdown there would be a lot of other defaults before the US.
If you knew how fricking offensive this is to me.
I know this is a message board, but you're going to have to trust me here, I understand interest rate risk better than you do.
Still in much better shape than most other developed countries. Also you seem to be inferring debt is a bad thing? We are the reserve currency of the world in large part due to our Treasury market being the deepest and most liquid in the world.
The deficit has drastically shrunk recently, to the point its becoming very harder and harder to find collateral (bills specifically). If you have a Bloomberg go to FIT 2 and look at T-Bills trading negative around quarter end.
quote:
Assuming your scenario is accurate, and I agree to limited extent, clearly the S&P 500 would not be residing at all time highs today.
That isn't my scenario, my scenario was that you said yields would be higher if the Fed didn't do QE. My point was that you a making a major assumption that may not be true given a flight to quality scenario. QE supports the S&P, that's pretty much a given. My point is that you were making way too many assumptions regarding interest rates.
quote:
submit that the US government would have been forced into default in very short order, so interest would not have fallen they would have risen.
Again, assumptions. If there was a giant flight to quality the US is still in the best shape of any developed country. Which other country's debt would you feel safer with? In a global financial meltdown there would be a lot of other defaults before the US.
quote:
Read up on types of interest rate risk,
If you knew how fricking offensive this is to me.
I know this is a message board, but you're going to have to trust me here, I understand interest rate risk better than you do.
quote:
and then consider the parlous state of US government finances
Still in much better shape than most other developed countries. Also you seem to be inferring debt is a bad thing? We are the reserve currency of the world in large part due to our Treasury market being the deepest and most liquid in the world.
quote:
dependency of our economy on government spending in the aftermath of 2008.
The deficit has drastically shrunk recently, to the point its becoming very harder and harder to find collateral (bills specifically). If you have a Bloomberg go to FIT 2 and look at T-Bills trading negative around quarter end.
Posted on 9/11/14 at 6:46 pm to BennyAndTheInkJets
quote:
I know this is a message board, but you're going to have to trust me here, I understand interest rate risk better than you do.
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