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Interest rates will never climb appreciably again. We will never be able to service the interest on a $40 trillion national debt with the prime at 5%, for example.
The Fed has painted us into a corner of zeroish prime interest rates for the forseeable future or until the ultimate financial collapse. The ability to lower interest rates to stimulate the economy is now dead and gone. The best thing we could have done in 2008 was to let the market puke up and expunge all the debt and take our hit with a short term economic depression that also achieved risk management so that irresponsible institutions learned Uncle Sugar would not bail them out in the future.
By rewarding all the irresponsible institutions, they learned that the taxpayers would backstop every insane risk they took. Heads they win, tails they don't lose.
This ends badly. Hopefully not in my remaining lifetime.
Eh. Our debt to GDP ratio is still plenty manageable. A little inflation and that debt becomes even easier to service.
Your probably right. The FED printed that money to give us that check.
If congress did not give us tyhe checks and the rest of money on FED balance sheet, how does it make it into mainstream economy? None of the rest of that was seen in anyone average person's bank account.
I mean the FED's balance sheet is $7 trillion. And $1 trillion is about $3000 per person. So if all $7 trillion went to economy, then $21K should be in each person's bank account with United States population of 330 million.
I’m not sure I follow your question. Are you insinuating that 100% of government borrowed money should end up evenly distributed among the population?
I’m not sure I follow your question. Are you insinuating that 100% of government borrowed money should end up evenly distributed among the population?
Where else does it go. To the super rich or bank reserves?
The velocity of that money the average person does not see much if any of.
Where else does it go. To the super rich or bank reserves?
The velocity of that money the average person does not see much if any of.
It depends. In 2009, the Fed increased bank reserve requirements, so while the Fed was conducting a lot of open market operations, that money didn’t really enter circulation.
This is a great 3 minutes on how this works.
The Fed typically buys bonds. That’s how it inserts more cash into the system. If you own a US Treasury, the Fed buys it back. That cash is now in the system.
It depends. In 2009, the Fed increased bank reserve requirements, so while the Fed was conducting a lot of open market operations, that money didn’t really enter circulation.
The Fed typically buys bonds. That’s how it inserts more cash into the system. If you own a US Treasury, the Fed buys it back. That cash is now in the system.
Since the first QE in 2008/09, I have been expecting a burst of inflation, but to my surprise it never happened. Why? Fear! Too many people, businesses, and governments had near death experiences, and have been hoarding their QE cash. (as well as higher bank reserves)
Because of that, there has not been general inflation, only inflation in the prices of assets, stocks (record highs!), bonds (0% interest!) and real estate (OMG! House prices!).
Higher inflation will ease the burden of existing debts. However, I worry for the people heavily invested in long term bonds paying 2%, but I've been worrying about these people for 5 years, and they haven't been hurt yet.
I guess my big surprise has been that cash hoarding has gone on for so long, and this COVID collapse only reinforces the cash hoarding.
There was plenty of inflation due to Quantitative Excess. It just wasn't in the U.S. It was in developing countries where the hot money flows went. Real estate and other asset prices in some Asian countries with growth economies ballooned during QE's heyday and are now 'permanently' unaffordable to all but investors and the wealthy.
The current trend to moving jobs out of the high-cost areas is an acknowledgement that business is finding inflation untenable and looking for other solutions. Governments and business are reducing their in-person availability and level of service to keep costs down. Covid is just an excuse. Indications are that these plans are permanent. Many of those jobs that were available before will be cut, and the client/customer will have to use more electronic means to submit requests or work in process.
It takes the whole world to support the US markets now. When the Fed handed off QE to the ECB and BOJ in 2014, the central banks purchased more assets than necessary to cover their own debt issuance. In fact, it was enough to cover the US debt flow as well. In addition, foreign central banks and government pension funds were told to buy US equities since current regulations don't allow the Fed to buy stocks. So they're doing it indirectly by using proxies or indirectly by buying corporate bonds to finance share buybacks.
The Fed has printed more than enough this year to absorb debt issuance. That's why the Treasury department has nearly 1.8 trillion dollars in cash, far more than necessary to fund operations for the current administration. No doubt that they're spending it down to goose markets (by buying treasuries).
The US market has been essentially a vendor finance scheme where major trade partners in Japan and Europe provide financing of US financial assets to spur trade.
It depends. In 2009, the Fed increased bank reserve requirements, so while the Fed was conducting a lot of open market operations, that money didn’t really enter circulation.
This is a great 3 minutes on how this works.
The Fed typically buys bonds. That’s how it inserts more cash into the system. If you own a US Treasury, the Fed buys it back. That cash is now in the system.
They're monetizing debt and financing a deficit equal to 10 percent of GDP. The money finds its way into the economy through government spending and tax cuts as well as through asset inflation. The Fed telegraphs the purchases six months to a year in advance to allow major institutions to mark up assets before they're flipped to the Federal Reserve. It is not just a simple debt monetization scheme, although it's typical to find the same CUSIPs in both the Treasury and FRBNY auctions days apart.
What really kept the clamps on the economy was the ongoing foreclosure crisis which didn't end until the governments and courts restricted the banks' foreclosure proceedings. From 2013 on, housing prices started inflating again.
Last edited by lchoro; 08-28-2020 at 08:56 AM..
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