The federal reserve is going to pull another ONE TRILLION DOLLARS OUT OF THEIR ASS!

[LiberalNut]

Paulie, WTF is the bank gonna do with the money? Sit in a vault? Why the fuck would the bank do that?

 

[Paulie]

Paulie, WTF is the bank gonna do with the money? Sit in a vault? Why the fuck would the bank do that?

I have to correct myself with the analogy, checking accounts are in the M1 aggregate. It was a poorly thought out analogy on my part.

M0 is the amount of money in bank reserves, plus currency in circulation. It is the monetary base, which the Federal Reserve manipulates by either buying or selling assets.

The Fed doesn't control M1, because it can't force banks to loan. The purpose of this argument was you said that the Fed is not creating new money, which is simply not true.

Where do you think the Fed is getting the 600 billion for QE2?

 

[LiberalNut]

Where do you think the Fed is getting the 600 billion for QE2?

From the same place that all money comes from these days Paulie and has since 1975.

We could get down to the nitty gritty of theories of money but that isn't very useful in this context. If in the end you are saying that it's all illusory, all of it, I'll end up agreeing. Money, in the end, is nothing. It's a fantasy. Real wealth is real property. Goods and services. What the fed is trying to do is spur the production of goods and services.

 

[Paulie]

Where do you think the Fed is getting the 600 billion for QE2?

From the same place that all money comes from these days Paulie and has since 1975.

We could get down to the nitty gritty of theories of money but that isn't very useful in this context. If in the end you are saying that it's all illusory, all of it, I'll end up agreeing. Money, in the end, is nothing. It's a fantasy. Real wealth is real property. Goods and services. What the fed is trying to do is spur the production of goods and services.

I understand what they're doing.

But they're increasing the monetary base when they do it, by buying treasuries with newly created money.

This is the very definition of quantitative easing.

There are times when the Fed buys assets and offsets the purchases via the selling of OTHER assets from their balance sheet, in which case the purchase is not inflationary.

With QE, they aren't sterilizing the purchase. They are simply crediting their account with newly created money, and purchasing treasuries from institutions, which increases their reserves and the monetary base.

It's inflationary, and it should worry citizens because of the potential for serious price inflation down the road.

That is, unless we're to trust that the Fed can and will exit these positions in a manner timely enough to avoid a broader increase in the money supply.

Why trust them?

What this is doing right now is creating asset bubbles. Gold, stocks, other commodities to surely follow.

It's absurd economic policy.

 

[Paulie]

you can't pull a trillion dollars out of your ass and say it has value!

Boy, I wish I knew anyone who could pull money out of their ass. You're spewing bullshit.

Oh, one of those idiots who thinks the Federal Reserve doesn't create money out of thin air.

It's amazing to me that people who don't even understand how the Fed's open market operations work have the audacity to get involved in debates like this.

Fitz, why are you arguing with this idiot?

What part of them REDEEMING bonds are you failing to understand?

You see the BONDS represent DEBT.

They have RETIRED that debt by paying them off.

Was money created?

Not really since the money was created when the BOND was originally sold.

What they're doing now is turning that dpotential cash locked into the form of an IOU into liquid asset that the former bond holder will them either spend or reinvest.

I'm assuming that you're referring to the Fed sterilizing the purchase of securities by the selling of other securities, to offset the purchase and make it zero-sum.

They haven't done that since 9/2008.

 

[LiberalNut]

Why trust them?

Why trust anyone? The fed will do what they do in actual inflationary environments. The will increase rates by the means at their disposal.

It's absurd economic policy.

I actually agree but not because I fear an inflation boogieman. The balance sheets of banks aren't the problem. The problem is that the masses don't have the purchasing power to consume the output capacity of industry. We are at the Keynesian below full employment equilibrium. This place we are in now, the classical economist and all their reborn brethren (monetarists, austrians, supply-siders) insist can't exist. But look around. It exists right in front of your face.

We should be improving the balance sheets of consumers, not banks. In the short term, stimulate through government spending. In the long term, redistribute wealth.

What's your plan?

 

[Toro]

What is utility? Utility is mostly the positive feelings we get from something.

Oh, I see, you conjure utility value by redifining utility. How typical. Not buying it bud. In the words of the immortal El Rushbo...words mean things.

I'm not redefining utility. In economics, utility is a measure of relative satisfaction. If I'm happy staring at a gold bar in my vault, how is that any different than being happy eating a steak or having a lake view? Gold has utility to those who own it.

the main reason why people are buying right now is because they believe that the government is debasing the currency.

But, as you say, the price of gold has been rising for a decade. During that period, the fed has eased and tightened. I'm not saying irrational fear has no effect. What I'm saying is that irrational fear isn't a good thing to set policy by.

The rise in the price of gold is symptomatic of how monetary policy has been conducted. Now, of course, it isn't the only reason for the rise in the price of gold. Supply and endogenous demand has also played a part. But I've sat down with more than a few economists and commodities analysts over the years, and every single one of their marginal supply/demand models cannot account solely for industrial supply and demand characteristics of any commodity that is traded on an exchange. That is because of all this liquidity created by central sloshing all around the world. The GLD ETF is now the sixth largest holder of gold in the world. That's amazing. Had the GLD been listed 20 years ago, it would have been a neglected security. Nobody would have cared. But now, it is a heavily traded security.

 

[Toro]

The question at hand is whether or not the increase in liquidity will be inflationary. Now we have to stop acting as though the supply of money is the only thing that effects prices. It is not.

Of course it is not the only reason. Right now, the forces within the economy are highly deflationary. An asset-induced credit collapse always is. Bernanke is pulling out all the stops to pull us back from deflation. The problem is that he is creating the conditions for significant inflation in the future. Its like trying to create a controlled burn in a wet forest. Bernanke has doused a stack of logs with kerosene, is throwing matches at it, and has left full cans of kerosene lying around. That's no problem if the forest is wet or you have enough water bombers to put the fire out when the controlled burn gets out of hand. But if suddenly, the temperature rises to 100F and your planes are all in the shop, and all the cans of kerosene remain while you keep throwing matches, then things can get out of hand. If velocity picks up, inflation could become explosive because all those reserves in the financial system are the kerosene drenched- logs.

Bernanke talks about being able to withdraw the stimulus, but why should we have any confidence in the Fed? These are the same people who said that there was no Tech Bubble and there was no Housing Bubble, and if there were, then they could contain the damage. What credibility do they have?

 

[LiberalNut]

Supply and endogenous demand has also played a part.

In theory, supply and demand is the whole ball of wax. What you are claiming is that your notions of collective human psychology are affecting demand. Fine, your supposition is as good as any i suppose. I already admitted that irrational fear plays a role, though it's impossible to quantify. The point is that gold isn't REALLY worth anything more than it was 20 years ago.

and every single one of their marginal supply/demand models cannot account solely for industrial supply and demand characteristics of any commodity that is traded on an exchange.

And it's irrational to believe that they ever will. We can't have a comprehensive economics. Do you know why? Cause we'd have to have a determinative model for human behavior. Not only do we not have one and not only will we probably never have one but philosophically, if you actually believe in free will, we CAN'T ever have one.

That is because of all this liquidity created by central sloshing all around the world...

::sigh::

And there you go pushing your determinative model. And, of course, the actual data can't go where you are trying to make it go. You're pushing an IDEOLOGY alone. I essense, you're saying that the world works this way...er...because i say it does.

 

[LiberalNut]

The problem is that he is creating the conditions for significant inflation in the future.

I tell ya what, why don't we fix future problems in the future and fix problems that exist now, well, now?

why should we have any confidence in the Fed?

Why should you have confidence in anyone? The fed will do what it does. In inflationary environments, the fed raises rates.

 

[Paulie]

Why trust them?

Why trust anyone? The fed will do what they do in actual inflationary environments. The will increase rates by the means at their disposal.

When you can show me a time in the Fed's history that they got that part right without causing enormous collateral damage elsewhere in the economy, we'll talk.

I actually agree but not because I fear an inflation boogieman. The balance sheets of banks aren't the problem. The problem is that the masses don't have the purchasing power to consume the output capacity of industry. We are at the Keynesian below full employment equilibrium. This place we are in now, the classical economist and all their reborn brethren (monetarists, austrians, supply-siders) insist can't exist. But look around. It exists right in front of your face.

What I'm seeing is your "liquidity trap". And the idea that we should just continue to throw MORE money at it, either through monetary or fiscal policy, is laughable.

TRILLIONS so far have not done a damn thing, so the answer to that is another trillion? How about 10? Go big or go home.

We should be improving the balance sheets of consumers, not banks. In the short term, stimulate through government spending. In the long term, redistribute wealth.

What's your plan?

I don't want to live in a society where the economy is only as good as how much we take from the haves and give to the have nots.

That isn't freedom.

I don't have a "plan", because I'm not an economist. But I know what "plans" I don't like, and wealth redistribution is one I don't like.

 

[Toro]

The problem is that he is creating the conditions for significant inflation in the future.

I tell ya what, why don't we fix future problems in the future and fix problems that exist now, well, now?

I'm sympathetic to that but I have a lot of doubt that QE2 will work. I can give you some rumblings I have heard in the banking sector that it may be working, since QE2 has lowered the intermediate part of the curve, which is forcing banks to increase their loan volumes. But by how much, I have no idea. I am highly skeptical that lowering 5-7 year rates by 30 bps will have much of an affect. Most of the debt that has been issued over the past year has been used to pay off prior debt, which isn't a bad thing because we were going to go off a cliff in a few years if it wasn't termed out. But it isn't helping business much. Why would it? When there is excess capacity, why will businesses expand?

why should we have any confidence in the Fed?

Why should you have confidence in anyone? The fed will do what it does. In inflationary environments, the fed raises rates.

The 70s were a terrible decade, and the Fed had to push rates up to 20% to break the back of inflation, inducing two brutal recessions in the early 80s to do so. It was a big price to pay.

But the Fed is not allowing market prices to clear. They are using bigger and bigger stimuli and getting smaller and smaller results. Excess monetary creation contributed to the Tech Bubble and to the even bigger Housing Bubble, along with a Credit Bubble, whereas the 2003-07 recovery was the weakest on record since the Great Depression. Bigger stimulus, smaller results. They are doing the same things on a more massive scale than they have done for the past decade, which has created massive distortions in the economy. Why should we have any confidence they are going to get it right this time? It might work, but the Fed has given us little reason to believe in its methods.

 

[LiberalNut]

without causing enormous collateral damage

Hyperbolic rhetoric. You wanna see collateral damage? Have a look at the UK in the 80s when the monetarists held sway and their central bank stopped manipulating rates. Does the fed screw up every single time it tries to "fine tune"? YES! And they always will. That's why we shouldn't base policy on prognostications about the future, which none of us can actually see. We should deal with today's problems today.

TRILLIONS so far have not done a damn thing

But you're wrong. Great Depression II was turned into a medium sized downturn. An economy that was shedding 800,000 private sector jobs a month was turned into one creating them at about 150,000 a month. Why do I support Keynesian policies? Cause they work!

I don't want to live in a society where the economy is only as good as how much we take from the haves and give to the have nots.

Then you want to live in the gilded age followed by a Great Depression followed by another gilded age and so on ad infinitum. You've been sold the ideology of the super rich based on hate speech and lies.

That isn't freedom.

Living out in the woods, away from all this society bullshit is freedom. Within society, your freedom will be limited. The only questions to be answered if you choose to live within society is who is going to be empowered to make decisions for the flock, who is going to do the labor, what that labor will be put to and who will benefit from that labor. I say our public policy institutions must play a role. You want to give all the power to plutocrats, though you don't comprehend that this is what you are advocating.

 

[LiberalNut]

I have a lot of doubt that QE2 will work.

And, as i have stated repeatedly, so do I. But, not trying for fear of the inflation boogieman is a very bad idea.

 

[Paulie]

without causing enormous collateral damage

Hyperbolic rhetoric. You wanna see collateral damage? Have a look at the UK in the 80s when the monetarists held sway and their central bank stopped manipulating rates. Does the fed screw up every single time it tries to "fine tune"? YES! And they always will. That's why we shouldn't base policy on prognostications about the future, which none of us can actually see. We should deal with today's problems today.

TRILLIONS so far have not done a damn thing

But you're wrong. Great Depression II was turned into a medium sized downturn. An economy that was shedding 800,000 private sector jobs a month was turned into one creating them at about 150,000 a month. Why do I support Keynesian policies? Cause they work!

I don't want to live in a society where the economy is only as good as how much we take from the haves and give to the have nots.

Then you want to live in the gilded age followed by a Great Depression followed by another gilded age and so on ad infinitum. You've been sold the ideology of the super rich based on hate speech and lies.

That isn't freedom.

Living out in the woods, away from all this society bullshit is freedom. Within society, your freedom will be limited. The only questions to be answered if you choose to live within society is who is going to be empowered to make decisions for the flock, who is going to do the labor, what that labor will be put to and who will benefit from that labor. I say our public policy institutions must play a role. You want to give all the power to plutocrats, though you don't comprehend that this is what you are advocating.

I would argue that the GD wouldn't have recovered in the manner it did without WW2.

It's nice to be adding jobs, but at the cost of killing millions of people?

It's the same fucking thing over and over since the Roman Empire. Indebt yourself to high heaven, create a bunch of new money, and if that doesn't work, start some wars.

When are you going to finally get tired of it?

But the Fed is not allowing market prices to clear. They are using bigger and bigger stimuli and getting smaller and smaller results. Excess monetary creation contributed to the Tech Bubble and to the even bigger Housing Bubble, along with a Credit Bubble, whereas the 2003-07 recovery was the weakest on record since the Great Depression. Bigger stimulus, smaller results. They are doing the same things on a more massive scale than they have done for the past decade, which has created massive distortions in the economy. Why should we have any confidence they are going to get it right this time? It might work, but the Fed has given us little reason to believe in its methods.

Exactly.

This is the reason why it makes much more sense to avoid massive increases in the money supply due to a fear of the inflation boogieman. That boogieman has been kicking our fucking ASSES.

When are you going to recognize that it can and WILL show its face again?

I haven't seen the Fed get it right YET. Now they're up against the most massive and monumental balance sheet situation in ins entire HISTORY.

We need them to get it right now more than ever, and their track record just isn't comforting.

Enough is enough.

 

[Paulie]

You seem to think all the bubbles we've experienced are a necessary evil in some on-going crusade to figure out how to perfect manipulative monetary policies.

When in reality, these bubbles are the very reason why it is a FAILURE.

 

[LiberalNut]

I would argue that the GD wouldn't have recovered in the manner it did without WW2.

You're wrong. GDP reached pre-depression levels in 1936. However, I'm not gonna overlook the effect of the most massive government spending in human history, WWII. I mean you do realize that WWII was exactly that, right?

It's nice to be adding jobs, but at the cost of killing millions of people?

Gotta agree with you there. Much better to spend the money on infrastructure rather than tanks that literally were pushed into the ocean after the war.

It's the same fucking thing over and over since the Roman Empire.

The Roman empire, which was based on slavery and imperialism, is definately something to be avoided. I would argue that our resemblance to that empire is not as close as many neophytes suggest.

Enough is enough.

Riiiiight, and as you admitted, you have no plan. We should do nothing then? I think not.

 

[LiberalNut]

these bubbles are the very reason why it is a FAILURE.

You're just wrong. Since the government has taken a more active role in the economy, the length, severity and frequency of economic downturns have all been reduced. As far as the data goes, this is not an arguable point. There's a reason why pretty much all democratic governments do Keynesianism and it isn't the mass stupidity that the right wing noise machine is trying to convince you that it is. It fucking works. Does it work perfectly? Hell no. Does it work better than unfettered capitalism? hell yes.

 

[Big Fitz]

Paulie, WTF is the bank gonna do with the money? Sit in a vault? Why the fuck would the bank do that?

Because they essentially HAVE been so they can ride out the instability your dimestore messiah's economic 'experts' have created.

We could get down to the nitty gritty of theories of money but that isn't very useful in this context

So you're not willing to play in the real world application, just the textbook intent of the theory.

Money, in the end, is nothing. It's a fantasy. Real wealth is real property. Goods and services. What the fed is trying to do is spur the production of goods and services.

Oopsie... we just changed teams, and to hell with moving the goal posts. This is not the tune you've been singing for 7 pages. Money's value is based on what the US government tries to say it is. This is modified by both supply (amount of money printed) and what people are willing to PAY for it (bonds and monetary markets). If the supply is suddenly more plentiful, it becomes cheaper to buy in other forms of trade or commodities become more expensive in that currency because they can. It's called the marketplace, and like it or not, the government has no real say in what someone is going to pay for it.

 

[Paulie]

I would argue that the GD wouldn't have recovered in the manner it did without WW2.

You're wrong. GDP reached pre-depression levels in 1936. However, I'm not gonna overlook the effect of the most massive government spending in human history, WWII. I mean you do realize that WWII was exactly that, right?

It's nice to be adding jobs, but at the cost of killing millions of people?

Gotta agree with you there. Much better to spend the money on infrastructure rather than tanks that literally were pushed into the ocean after the war.

It's the same fucking thing over and over since the Roman Empire.

The Roman empire, which was based on slavery and imperialism, is definately something to be avoided. I would argue that our resemblance to that empire is not as close as many neophytes suggest.

Enough is enough.

Riiiiight, and as you admitted, you have no plan. We should do nothing then? I think not.

GD was an acronym for Great Depression to shorten it. I wasn't talking about GDP.

I see too many striking similarities between us and the Romans to overlook it.

And I've got news for you...You've never seen unfettered capitalism.

When competition-crushing regulations are done away with, and we don't have a central bank controlling the very medium of exchange used, then maybe you can start calling it unfettered.