I recognize that a lot of posters already know this, but it is worth repeating here. There is a world of difference between the Fed’s QE and the Congress using deficit spending.
When the Congress authorizes a $100 Ben for a new carrier and fighter jets, the Treasury starts spending the money to make it happen. That $100bn is quite literally created out of thin air with a few keystrokes on a computer.
When the Fed buys securities on the open market, it’s a little different. Those assets already exist. They were created in the past. It’s not so much a matter of creating money, as it is manipulating the yield curve and bailing out the holders of distressed securities. More akin to crony capitalism. Certainly a suspicious activity. I share TH’s disdain for the seemingly casual way this happens. And there is a reason those assets are distressed, and the Fed is stepping in to protect the current holders from further loss. Anyone with prior knowledge can make a butt load of money. It stinks to all get out. But it’s not nearly as inflationary as Congress’s deficit spending.
Wouldn’t the $'s status as the world’s reserve currency mean that other currencies are less sovereign than our currency and also that our monetary decisions impact their economies regardless of their internal monetary policy?
Our country has been engaged in expansive monetary policy for so long, I’m slightly surprised that it took as long as it did for inflation to start becoming a problem. I think inflation is here to stay in the short and intermediate term, barring a meaningful recession/depression.
I didn’t know that. I thought they had to match that spending with either taxes or borrowing. If they borrow, new treasury debt is sold to the public and soaks up dollars already in existence. (unless the Fed buys the debt with money created by a few keystrokes)
Yep, I know I’m like 20 years behind the curve here. But, the old explanation made sense to me.
-1.4% GDP in Q1. Weird, all the experts were predicting more like +1.4%.
Fed might raise a quarter-point at the next meeting. A half-point is off the board IMO. I expect all kinds of dovish talk to start up soon, citing weakness in the economy.
Interesting, not surprising. Inflation is going to hit a brick wall here in the next month or 2 also. To talk in business terms I really think most YoY economic numbers this year and into the first part of next year to be mean reverting rather than a change in the baseline if that makes sense.
This is an interesting post that gets at the deeper issue of economic control increasing over time. Once upon a time, the market determined interest rates. Once upon a time, those interest rates effectively limited increase in money supply since you’d have to sell treasuries at market price/rate to fund the increase.
These types of centralized systems seem to share a common feature in that they cannot fail explicitly, but only gain new powers/control to address their past failings. For example, OMO have been around a long time but are geared toward manipulating interest rates. But when rates got close to zero, OMO ceases to be effective and so, poof, the new control method of quantitative easing came to be.
Eventually the Fed will necessarily be in the business of prohibiting or de/incentivizing certain types of transactions once interest rates, OMO, QE, and other current methods fail. I have no idea when this might occur, though I strongly suspect that a central bank digital currency will be the method.
I’m feeling my max rate prediction at I think it was 2.5% is going to be too high now, they sure moved quick in finding a reason not to raise them much