Turn Off The Monetary Printing Press (1 Viewer)

[rockaction]

Please, turn that #### off. It might be too late. If anything I know from all my years on this earth, it's that you always follow the Milton Friedman disciples when it comes to monetary economics. I think they're probably quaking right now. 

I'm wondering if I'm speculating baselessly or if this is the case. Haven't we increased the money supply by nearly 27% since 2020? 

C'mon. Turn off the presses. This is bad news. 

 

[tommyGunZ]

Conversely, the economists I read are suggesting we may have already seen the peak of this inflationary cycle.  

 

[timschochet]

Please, turn that #### off. It might be too late. If anything I know from all my years on this earth, it's that you always follow the Milton Friedman disciples when it comes to monetary economics. I think they're probably quaking right now. 

I'm wondering if I'm speculating baselessly or if this is the case. Haven't we increased the money supply by nearly 27% since 2020? 

C'mon. Turn off the presses. This is bad news. 

John Maynard says it’s OK, don’t worry. 

 

[rockaction]

John Maynard says it’s OK, don’t worry. 

Uh huh. And that'll work out well. 

 

[The Commish]

Please, turn that #### off. It might be too late. If anything I know from all my years on this earth, it's that you always follow the Milton Friedman disciples when it comes to monetary economics. I think they're probably quaking right now. 

I'm wondering if I'm speculating baselessly or if this is the case. Haven't we increased the money supply by nearly 27% since 2020? 

C'mon. Turn off the presses. This is bad news. 

This ship sailed long ago.  If people don't believe that, look no further than 2020 when we printed 25% of our money and people were laughing at those of us pointing to it and saying that wasn't a good idea.  It was a rather safe assumption we were going to see issues getting out from under the unemployment money tree.  That was pointed out when the legislation was signed, before they flipped the printing presses to overdrive.

 

[Dinsy Ejotuz]

There's already a great thread on inflation.

 

[quick-hands]

John Maynard says it’s OK, don’t worry. 

No he doesnt.   Even keynes talked about shrinking the supply of money during good economic times.

This is AOConomics or modern monatary theory.

 

[quick-hands]

This ship sailed long ago.  If people don't believe that, look no further than 2020 when we printed 25% of our money and people were laughing at those of us pointing to it and saying that wasn't a good idea.  It was a rather safe assumption we were going to see issues getting out from under the unemployment money tree.  That was pointed out when the legislation was signed, before they flipped the printing presses to overdrive.

80% of the money in the system was printed since 2020

 

[fruity pebbles]

It’s a debt based system. We’ll keep printing until the currency collapses. 

 

[Godsbrother]

We haven't had a true fiscal conservative president, senate or congress in a lonnnnggg time.  They all want to print money 

 

[timschochet]

We haven't had a true fiscal conservative president, senate or congress in a lonnnnggg time.  They all want to print money 

Ever

 

[SoBeDad]

We haven't had a true fiscal conservative president, senate or congress in a lonnnnggg time.  They all want to print money 

What about George HW Bush, who help set the stage for Clinton to become president and have tremendous growth with budget surpluses?

 

[Snotbubbles]

What about George HW Bush, who help set the stage for Clinton to become president and have tremendous growth with budget surpluses?

Clinton deregulated the financial markets and set the stage for the 2008 recession.    

 

[SoBeDad]

Clinton deregulated the financial markets and set the stage for the 2008 recession.    

We need presidents who look at fiscal policy long term, and not just for the next 4 or 8 years. Unfortunately, it's likely to lead to a 1-term presidency. We should be acting on Social Security now.

 

[rockaction]

What about George HW Bush, who help set the stage for Clinton to become president and have tremendous growth with budget surpluses?

Yep. He raised taxes and it cost him the presidency in '92. That's why we'll never see another one. Too much power to go for. The cost of doing the right thing is too personally punitive. 

 

[Desert_Power]

Please, turn that #### off. It might be too late. If anything I know from all my years on this earth, it's that you always follow the Milton Friedman disciples when it comes to monetary economics. I think they're probably quaking right now. 

I'm wondering if I'm speculating baselessly or if this is the case. Haven't we increased the money supply by nearly 27% since 2020? 

C'mon. Turn off the presses. This is bad news. 

It could be true that the Fed should have started raising rates sooner, but the whole money supply piece is a red herring. The money created through QE doesn't really go anywhere. It just sits on the balance sheets of the banking system. People that start an argument focused on the changes in base money supply are going to end up with a spurious conclusion. Just like 12-14 years ago.

 

[E Street Brat]

It could be true that the Fed should have started raising rates sooner, but the whole money supply piece is a red herring. The money created through QE doesn't really go anywhere. It just sits on the balance sheets of the banking system. People that start an argument focused on the changes in base money supply are going to end up with a spurious conclusion. Just like 12-14 years ago.

How much has gone into the stock market? I'm guessing a lot.

We are basically running a hybrid that now includes "modern monetary theory"  At some point it will be all MMT and a digital dollar. Taxes will not be collected to run government or fund projects. You just print that money. Taxes will be used to persuade and/or punish. 

 

[Desert_Power]

How much has gone into the stock market? I'm guessing a lot.

Are we talking about the Federal Reserve here? The answer is literally none.

 

[Caveman33]

It could be true that the Fed should have started raising rates sooner, but the whole money supply piece is a red herring. The money created through QE doesn't really go anywhere. It just sits on the balance sheets of the banking system. People that start an argument focused on the changes in base money supply are going to end up with a spurious conclusion. Just like 12-14 years ago.

I know very little about this so correct me if I'm wrong, but doesn't QE involve the Fed using reserves or "digital IOUs" to buy bonds from banks and the banks can later turn those reserves into cash, if needed, which would require the Fed to print money?  So long as all of us aren't rushing at the same time to remove our money from banks, then the reserves can sit on their balance sheets without being redeemed for actual cash.  But QE has created an unreasonably low interest rate economy which makes investing in stocks the only way for the average person to get a decent return on their savings.  This leads to a feedback loop where investors are receiving great returns on publicly traded companies, even speculative ones that are total junk with little chance of ever being profitable, so everyone keeps investing most their money into the market.  And the Fed is supposedly exchanging reserves for treasury bonds and "solid" corporate bonds but how many of those corporate bonds are actually junk bonds?  Additionally, this whole QE mechanism of stimulating the economy by making it profitable for banks to lend money seems like more BS trickle down where the average person gets scraps while the already rich bankers feast.

 

[The Commish]

How much has gone into the stock market? I'm guessing a lot.

If all the stock buybacks that occurred from the 2018 tax cuts is any indication, the answer is "a lot"  It certainly didnt trickle down into the everyday economy. 

 

[FreeBaGeL]

80% of the money in the system was printed since 2020

The majority of that in 2020, for obvious reasons.

We've definitely printed way too much but this is a little misleading because most of that is the unlimited QE the fed implemented in Mar/Apr 2020 (which they have finally been tapering out of and are now finishing up), but that money doesn't go into circulation.  So it's something like 80% of all money printed since 2020, but 20% of all money in circulation printed since 2020.  Still a big number, but a lot less crazy looking than 80%.

 

[FreeBaGeL]

Are we talking about the Federal Reserve here? The answer is literally none.

None into the actual stock market, but the vast majority of it into treasuries and whatnot meant specifically to prop up the stock market.  The stock market in principle, even if not technically.

 

[quick-hands]

The majority of that in 2020, for obvious reasons.

We've definitely printed way too much but this is a little misleading because most of that is the unlimited QE the fed implemented in Mar/Apr 2020 (which they have finally been tapering out of and are now finishing up), but that money doesn't go into circulation.  So it's something like 80% of all money printed since 2020, but 20% of all money in circulation printed since 2020.  Still a big number, but a lot less crazy looking than 80%.

The monetary policy is 10x a bigger problem than fiscal policy.

 

[djmich]

The monetary policy is 10x a bigger problem than fiscal policy.

They would seem to be very intertwined to me.

Overall we're screwed, will have to keep printing.  I think this this is basically the currency path of every major civilization since currency existed.  Cant have fiscal restraint...borrow...debase...die.  Thats all I have to say about that.

 

[Desert_Power]

I know very little about this so correct me if I'm wrong, but doesn't QE involve the Fed using reserves or "digital IOUs" to buy bonds from banks and the banks can later turn those reserves into cash, if needed, which would require the Fed to print money?  So long as all of us aren't rushing at the same time to remove our money from banks, then the reserves can sit on their balance sheets without being redeemed for actual cash.

Not really. Both the currency stock and the reserves are liabilities of the Federal Reserve, but both are separately controlled by them. Currency is issued to keep a fairly stable amount of it out there. Reserves are what it issued to fund Federal Reserve Asset purchases. The banking system in aggregate cannot raise or lower the level of reserves; only the Federal Reserve can. So they are interchangeable to the individual or institution but controlled in the aggregate.

If the populace suddenly decided it wanted to hold a lot more physical currency, the Federal Reserve would just order the Treasury's Bureau of Engraving to print more while draining reducing reserves (or conducting a Repo operation with similar effects).

https://www.federalreserve.gov/monetarypolicy/files/balance_sheet_developments_report_202111.pdf

 And the Fed is supposedly exchanging reserves for treasury bonds and "solid" corporate bonds but how many of those corporate bonds are actually junk bonds?

There are certainly some "other assets" and remnants from other programs, but 94% are federally guaranteed bonds (from link above).

 

[Desert_Power]

None into the actual stock market, but the vast majority of it into treasuries and whatnot meant specifically to prop up the stock market.  The stock market in principle, even if not technically.

Sure. I try to explain some of the technicals because people love to point to one number (usually narrow money supply) and say it means something it doesn't. Often times with something to sell.

 

[quick-hands]

They would seem to be very intertwined to me.

Overall we're screwed, will have to keep printing.  I think this this is basically the currency path of every major civilization since currency existed.  Cant have fiscal restraint...borrow...debase...die.  Thats all I have to say about that.

I'm sure it will all work out....somehow

 

[MAC_32]

Yep. He raised taxes and it cost him the presidency in '92. That's why we'll never see another one. Too much power to go for. The cost of doing the right thing is too personally punitive. 

Yep. We hold presidents accountable for what is happening right now. We are too simple minded and bias to honestly assess cause and effect. It's our fault we get short sighted decision making - it reflects our values. 

 

[djmich]

Yep. We hold presidents accountable for what is happening right now. We are too simple minded and bias to honestly assess cause and effect. It's our fault we get short sighted decision making - it reflects our values. 

I agree, but we're not unique (in current times or throughout history)...this is a human flaw when it comes to governance and political systems.

 

[Caveman33]

Not really. Both the currency stock and the reserves are liabilities of the Federal Reserve, but both are separately controlled by them. Currency is issued to keep a fairly stable amount of it out there. Reserves are what it issued to fund Federal Reserve Asset purchases. The banking system in aggregate cannot raise or lower the level of reserves; only the Federal Reserve can. So they are interchangeable to the individual or institution but controlled in the aggregate.

If the populace suddenly decided it wanted to hold a lot more physical currency, the Federal Reserve would just order the Treasury's Bureau of Engraving to print more while draining reducing reserves (or conducting a Repo operation with similar effects).

https://www.federalreserve.gov/monetarypolicy/files/balance_sheet_developments_report_202111.pdf

There are certainly some "other assets" and remnants from other programs, but 94% are federally guaranteed bonds (from link above).

Alright, I suppose this is part of what I do not understand.  Are you saying that if 1 bank finds itself in desperate need of cash to continue their operations, they cannot ask the Fed to exchange reserves for cash as that would lower the aggregate amount of reserves?  So the bank in need of cash would need to conduct some sort of repo with another bank?

In regards to the reserve terminology: are the reserves that the Fed gives to banks in exchange for treasuries and bonds the same or different than the x% reserves that banks are required to maintain in relation to customer deposits?

Also, if reserves are not equal and equivalent to cash, then how are banks able to make loans off these reserves that they receive from the Fed?  Is this made possible by people or businesses receiving loans and generally moving them by check or electronically from one institution to another?

Thanks for answering these questions.  It still seems to me like the reserves that the Fed issues are equivalent to future obligations or cash IOUs.  Even if QE is not immediately increasing the amount of cash circulating in the economy, digital money is just as good as cash for most purposes and I would expect a few trillion injection to weaken the value of the dollar.

 

[Sand]

Please, turn that #### off. It might be too late. If anything I know from all my years on this earth, it's that you always follow the Milton Friedman disciples when it comes to monetary economics. I think they're probably quaking right now. 

I'm wondering if I'm speculating baselessly or if this is the case. Haven't we increased the money supply by nearly 27% since 2020? 

C'mon. Turn off the presses. This is bad news. 

The administration is sending up flags that it will cancel student debt (right before the midterms, just coincidence, I'm sure).  

Brrrrrrrr...  1.75T coming up   Brrrrrrrrr...

 

[fruity pebbles]

The administration is sending up flags that it will cancel student debt (right before the midterms, just coincidence, I'm sure).  

Brrrrrrrr...  1.75T coming up   Brrrrrrrrr...

They'll keep dangling that carrot until it doesn't work. Hopefully people don't fall for it again. 

 

[Desert_Power]

Alright, I suppose this is part of what I do not understand.  Are you saying that if 1 bank finds itself in desperate need of cash to continue their operations, they cannot ask the Fed to exchange reserves for cash as that would lower the aggregate amount of reserves?  So the bank in need of cash would need to conduct some sort of repo with another bank?

In regards to the reserve terminology: are the reserves that the Fed gives to banks in exchange for treasuries and bonds the same or different than the x% reserves that banks are required to maintain in relation to customer deposits?

Also, if reserves are not equal and equivalent to cash, then how are banks able to make loans off these reserves that they receive from the Fed?  Is this made possible by people or businesses receiving loans and generally moving them by check or electronically from one institution to another?

Thanks for answering these questions.  It still seems to me like the reserves that the Fed issues are equivalent to future obligations or cash IOUs.  Even if QE is not immediately increasing the amount of cash circulating in the economy, digital money is just as good as cash for most purposes and I would expect a few trillion injection to weaken the value of the dollar.

What happens if a bank actually needs physical cash? Not a scenario I have seen happen. In my experience there was always much more money sitting in the vaults at the Fed that customers would ever demand. There is probably a mechanism to move it between firms. Point is that money would ALREADY be printed though. I think the coin shortage is a bit instructive here, where the Fed did order the Treasury to mint additional coins. However both the currency and reserves remain controlled by the same entity (Fed).

Yes it is the same as those reserves. Reserve requirements really don't matter anymore as every bank is holding "excess" reserves. Before 2008 each bank would have to meet their reserve requirement based on a combination of reserves at the Fed and vault cash. The NY Fed would conduct open market operations to ensure the level of reserves was sufficient to meet the requirements of the banking system to hold. The introduction of interest on reserves and resulting changes to how the monetary system is structured changed all that.

Banks do not lend reserves out. I'll refer you to this paper that I have made numerous new hires read over the years. It explains it better than I can:

Neither individual banks nor banks as a whole can "lend out" reserves, but individual banks can and do offload their reserves (particularly excess reserves) by lending them to other banks or by buying assets; but the banks in aggregate cannot do this--in such cases, the reserves that leave one bank's balance sheet just pop up on another, remaining on the central bank's balance sheet all the while.

I think it is right that, all else equal, QE is expected to weaken the value of the dollar. However, the channel that matters is still the same interest rate channel (hence why QE is usually only done when rates are at zero). The fact that the US rates are still higher than the rest of the developed world makes intentional depreciation harder. The glut of savings doesn't really have any other currency to go to.

Overall point is that a lot of this stuff is rather marginal. The system isn't creating future unfunded liabilities (although the fiscal authority does) where this stuff gets out of control. It is a far cry from how people use "printing money" colloquially about situations in other countries. That usually refers to some type of monetization of the debt where the central bank is funding the Treasury directly. My reading is the whole "Mint the Coin" scheme would be more similar to what folks worry about here.

 

[Desert_Power]

The administration is sending up flags that it will cancel student debt (right before the midterms, just coincidence, I'm sure).  

Brrrrrrrr...  1.75T coming up   Brrrrrrrrr...

They'll keep dangling that carrot until it doesn't work. Hopefully people don't fall for it again. 

I think it is a silly policy, but their approval ratings are so low I wouldn't be surprised if they finally do it.