bendog
Diamond Member
Again, what does net worth have to do with inflation?We enter a Brave New World of macroeconomics. The Fed finances historic deficits and tax cuts for the uberwealthy by placing hundreds of millions of US debt on it's balance sheet. Those hundreds of millions go to all kinds of things from Ford Class aircraft carriers to disability for those not covered under Social Security to Medicaid to Student Loans (ok DeVos is ending that, of all things) tax cuts for employers covering workers HC insurance ….. Most of these "items' increase economic activity either through directly employing people, or spending by people getting money.The Fed started reducing their balance sheet, unwinding QE1, 2, and 3. They sold some of their assets, and burned the cash. So that took some liquidity out of the system.
Second, as a result of the last big economic crash, banks are now required to hold larger chunks of Tier 1 capital. So that took some liquidity out of the system.
Then Deficit Donald took office and started doubling the deficit to a trillion dollars. When the banks bought all that debt, that took a shit ton more of liquidity out of the system.
So now the Fed is reversing course and enacting QE4.
And Deficit Donald doesn't have the decency to even tweet a thank you. It would take, what...ten seconds?
However when the Treasury pays the Fed interest either with taxes or new debt, the interest is magically paid back to the Treasury. And when a bond financing debt that the Fed bought matures …. the underlying debt is simply erased from the Fed's balance sheet.
Thus the debt is actually better than free money. It's never really repaid, and it earns interest for the borrower, the US Treasury. And the increase in economic activity really happened in that people did get to spend money! Our parents might make some crack about crack cocaine. Perhaps more accurately it is like Steven Earl Keen. The Road Goes on Forever and the Party Never Ends.
The actual money supply doesn't increase, so it is not inflationary from more dollars chasing the same goods/services. But it is like an addictive drug in that without continued injections of liquidity (or free borrowing) the economic engine ….. stops.
And when a bond financing debt that the Fed bought matures …. the underlying debt is simply erased from the Fed's balance sheet.
When the Treasury pays off the bond, the debt is erased.
Just as it's erased any time any bond is paid off.
The actual money supply doesn't increase,
When the Fed buys a bond, the money supply increases.
When the Fed sells a bond, or one of their bonds matures, the money supply decreases.
We don't operate off a money supply. Actual money supply is a small fraction of "net worths".
We don't operate off a money supply.
Not sure what you're trying to say here.
Actual money supply is a small fraction of "net worths".
Correct, so what?