Printing money to pay our bills. What if it just works.

[Attic]

Treasury issues bonds to pay its budget deficits. Bonds are bought by private dealers (who now have knowledge the fed will buy at premium from them).

Bottom line, a large number of bonds issued by the treasury end up at the fed. The fed has paid for the bonds with printed money. The treasury pays interest on the bonds and that interest that goes to bonds held by the fed is then given back to the treasury, called reparations. Does that strike any as a big deal? Is this common knowledge regarding QE?

The interest on a growing portion the national debt is just given back to the treasury from the fed. When the bond matures its just rolled over so printed money buys the bond, interest is nill and at bond maturity the thing is just rolled into new bond issues. In this cycle new and existing debt is created for free, given the interest is returned and at maturity the principle is just rolled into new debt. Granted this doesn't occur for all t notes, just a growing number of them. Reparations before QE were less than 20billion, now it is closer to 100B a year that the fed gives to the treasury.


Beyond that Chinese finger trap setup, the other thing that strikes me is growth in GDP vs the fed balance sheet since QE began. I see it as an 18 month period where everyone's concerns play out or are put to rest.

 

[Zebo]

Money follows supply and demand curves like anything else. More money chasing same items causes inflation. I suppose if you don;t mind utterly destroying purchasing power of 99% of the people nothing wrong. Thats what they will do anyway and you'll still get $2000 SS check it's just that a gallon of gas or milk will cost $50 instead of $4. (which was only $2 10 years ago)

 

[Attic]

I'm not sure they can do anything else, particularly when faced with the ability to engage in partially interest free debt creation, or seen a different way and to the extent of the reparations build as a result, the resulting debt reduction achieved through this arrangement. Of course required is the infinite money creating capabilities entrusted to the fed.

 

[Kwatt]

Treasury issues bonds to pay its budget deficits. Bonds are bought by private dealers (who now have knowledge the fed will buy at premium from them).

Bottom line, a large number of bonds issued by the treasury end up at the fed. The fed has paid for the bonds with printed money. The treasury pays interest on the bonds and that interest that goes to bonds held by the fed is then given back to the treasury, called reparations. Does that strike any as a big deal? Is this common knowledge regarding QE?

The interest on a growing portion the national debt is just given back to the treasury from the fed. When the bond matures its just rolled over so printed money buys the bond, interest is nill and at bond maturity the thing is just rolled into new bond issues. In this cycle new and existing debt is created for free, given the interest is returned and at maturity the principle is just rolled into new debt. Granted this doesn't occur for all t notes, just a growing number of them. Reparations before QE were less than 20billion, now it is closer to 100B a year that the fed gives to the treasury.


Beyond that Chinese finger trap setup, the other thing that strikes me is growth in GDP vs the fed balance sheet since QE began. I see it as an 18 month period where everyone's concerns play out or are put to rest.

Max out your credit cards. Get a HELOC to pay off the credit cards. Use your credit cards to make payments on the HELCO. Lets us know how it works out for you.

Intrest is being paid on the bonds. The next bond is issued for the orignal bond plus intrest. The new bonds (I think not sure though) are for shorter duration.

The Fed is being paid every year not to sell the bonds on the open market. If the ~ 3 Trillion? $s bonds are sold it will not end well. The Fed is not the only buyer but other nations are having problems themselves so they may not be buying as much as they use to.

That is the situation as I see it. I have may not have a complete understanding of this. If not someone please point out what I am missing.


.

 

[Attic]

Max out your credit cards. Get a HELOC to pay off the credit cards. Use your credit cards to make payments on the HELCO. Lets us know how it works out for you.



.

If the credit card companies gave me back all the interest I paid on them and also let me up the limit whenever I wanted then we would be closer to the current treasury/fed relationship. Given the HELOC is our nations future productivity, measured in dollars, the effect of upping my credit card limit ups my homes value. Granted this is intended to be inflationary.

The treasury doesn't get back all the interest it pays on bonds, just the interest they pay to bonds held by the fed.

 

[Kwatt]

just the interest they pay to bonds held by the fed.

Thank you. I did not know that. I feel smarter already!

.

 

[Attic]

Good read on some of the mechanics involved with what the fed is doing here. Covers the point regarding the reparations going from ~100B to 0 in the future. 0 Being the point at which the fed has to then print money to pay it's bills as it would actually be running at a loss unless it used its account trick of placing money on it's books to cover.

http://newmonetarism.blogspot.com/2013/03/the-balance-sheet-and-feds-future.html - The Balance Sheet and the Feds future.

Selected quotes below.

*note- T-Bills are just short term obligations (less than a year to maturity), whereas T Bond are longer term and up to 30 years.

In January 2007, the Fed balance sheet looked like this (reporting only the essentials):

Total Balance Sheet, Jan. 2007: $859 billion
Liabilities:
Currency: $820 billion
Reserves: $12 billion
Assets:
T bills: $277 billion
T bonds: $502 billion

In the most recent (March 7, 2013) release it looked like this:

Total Balance Sheet, March 2013: $3,084 billion
Liabilities:
Currency: $1,173 billion
Reserves: $1,748 billion
Assets:
T Bills: $0
T Bonds: $1,756 billion
Mortgage-Backed Securities: $1,015 billion
Agency Debt: $74 billion

You can see clearly the nature of the changes in what our central bank is doing. The Fed is a financial intermediary - though it has some key properties that distinguish it from commercial banks, for example. Whatever intermediation the Fed is doing, there is much more of it now than in early 2007, as the size of the balance sheet has increased by a factor that is now getting close to 4. Indeed, if the Fed's current asset purchase program - which proceeds at the pace of $85 billion per month in purchases of long maturity Treasury debt and mortgage-backed securities (MBS) - continues until the end of the year, as expected, then the peak increase in the size of the balance sheet should be a factor of about 4.8 (nominal) using January 2007 as a base period.

....

Fast forward to March 2013. As mentioned above, the balance sheet is much larger than it was earlier, there are no T-bills on the balance sheet, currency has grown but reserves have grown enormously, T-bonds of longer duration play an important role in the portfolio, and the Fed is holding a large stock of MBS which are backed by private mortgages. The Fed not only looks like a bank - it's also an important mortgage lender. As well, since October 2008, the Fed has been paying interest on reserves at 0.25%.

What's important about the changes we have seen since before the financial crisis? I'll organize this as a series of questions, and the answers to those questions.

How does monetary policy work now? There's a sense now in which, at the margin, the size of the balance sheet does not matter.

It's a complicated framework, but it undeniably benefits financiers at the expense of the majority of Americans. Largely it is allowed to continue because the lack of appreciation for just how much financial power is sucked from the producers and handed to the financiers.

 

[Doc Savage Fan]

I'm no economist and call me paranoid...but this just feels like a Ponzi scheme which will eventually come back to bite us all in the butt at some point in the future.

 

[bshole]

I'm no economist and call me paranoid...but this just feels like a Ponzi scheme which will eventually come back to bite us all in the butt at some point in the future.

I wouldn't worry about it too much, you will probably die before it happens.

 

[Attic]

I'm no economist and call me paranoid...but this just feels like a Ponzi scheme which will eventually come back to bite us all in the butt at some point in the future.

I don't like to stick someone with an hour of reading or watching, but http://www.youtube.com/watch?v=QU0XiklHPMc is part one of a five part series (about 10 mins each) that is an eye opener to the Ponzi Scheme. I don't think it will end, i'm more interested in how it will be tweaked to continue to operate to keep the power paradigm in place.

ie) a continually growing Fed balance sheet and it's effects and/or non effects on the economy.

 

[Mean MrMustard]

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."

- Henry Ford

 

[sm625]

Printing money does work, provided you can do 3 things:

1. Control the media to prevent any news of how this money printing only benefits the most wealthy at the expense of everyone else. ie you have to cover up the fact that the newly printed money almost always goes right into the pockets of the rich. Media control to cover up the loss in living standards is absolutely critical. In the US this is working pretty well.

2. Control inflation statistics. Invent bullcrap terms like "hedonic adjustments". If it cannot be bullcrapped away then simply dont count the inflation in the official statistics. ie ignore it.

3. Maintain an external demand for your devaluing currency. It helps if your currency is a global reserve currency. And it helps even more when all competing currencies are devaluing.

 

[Jaskalas]

I think it's a good thing to ask, why can't this party go on forever?

We need to identify any forcing that may destabilize the fed's efforts, before we call foul. There must be substance to any argument that this is going to end in a disaster.

 

[Kwatt]

I think it's a good thing to ask, why can't this party go on forever?

We need to identify any forcing that may destabilize the fed's efforts, before we call foul. There must be substance to any argument that this is going to end in a disaster.

Well I don't know if it can last or not. I don't have the smarts for it. Altough in the last few months I have been learning some. I have not found any other that did not end poorly. But, I have some more learning to do. And anyway everything that gets done someone has to be the first to do it.

.

 

[chucky2]

I think it's a good thing to ask, why can't this party go on forever?

We need to identify any forcing that may destabilize the fed's efforts, before we call foul. There must be substance to any argument that this is going to end in a disaster.

Oh, but it is going to go on forever. The American public is growing more and more used to relying on the Gov teat and "getting something for 'nothing'", that is going to just continue to get worse and worse, especially as the "what, I have to pay for that?" generations are kicking in.

Not that I view this as any real problem. The easy solution is to embrace the Spender ideology and hence never worry about money, debt, or long term consequences. If you're smart you'll be like me, switch to Spender ideology, and just make sure to get yours while you're still alive to enjoy it. I'd say someone else will pay your bill, but really, that will only happen when it all comes crashing down (which never will happen with Spender ideology, there will always be an excuse thrown out), and since we've got at least 2, 3, 5 decades (in the Spender world, that's like, eons away) before anything serious starts happening, what cause is there to worry? Chiv, er, Spend on bro, Spend on...

 

[Attic]

I think it's a good thing to ask, why can't this party go on forever?

We need to identify any forcing that may destabilize the fed's efforts, before we call foul. There must be substance to any argument that this is going to end in a disaster.

Agree. Looking back through history there is not a good track record for printing massive amounts of money. But QE is somewhat unique and folks really don't know what's going to happen.

My bottom line on it is that QE is centralizing control to a huge and meaningful effect. When it started nobody was talking about QE 3 or QE infinity, because it was clear QE1 was dangerous and uncharted. QE manipulates interest rates, equity markets, and by extension almost every transaction we engage in. In a nutshell it has taken power from 300 million individuals and given it to the fed. I cant grip that one small group is going to use that power more effectively than 300 million. Granted it's not an all or nothing grab, it's more of a gradual grab. I don't look at it as much more important than simply that, a financial power grab. The rate at which the top .1% has gained wealth vs the rest of the nation since the great recession is an indicator of who has benefitted from QE. Wealth inequality is greater than it was since before the great depression and soup lines (food stamps) are a greater percentage now than following the great depression.

Beyond that there's the reparations (fed profits given to the treasury) that is concerning. Mainly because the fed is able to print money to get these profits, the net benefiter being the US Gov (some would say the tax payer). Granted those reparations staying in country as opposed to going to China or Japan, i'm generally in favor of. Yet when the fed prints a 100 dollar bill. It costs the fed 6c. That profit goes back to the US Gov even though the Gov isn't actually printing, yet I don't see much clarity on that.

If I had to guess I'd say we'll begin to see 50 year mortgages and 2.5% 30 year rates during continued QE. If anything, I think QE shows us that the financial elite requires a growing nation of debtors (who grow in their debt burden), amnesty anyone?, to keep the Ponzi going. Financial crisis was the end game unless massive steps were taken to save it. It's all about the elites right to future productivity, keeping everyone in debt ensures future productivity can be funneled to the right places and it makes control easier. Productivity doesn't even have to grow, the main requirement is a right to and an ability to take more of the pool of productivity. Debt is the essential lever to achieve those goals, and he who controls the currency (banks) controls debt levels and impact.

 

[Attic]

Printing money does work, provided you can do 3 things:

1. Control the media to prevent any news of how this money printing only benefits the most wealthy at the expense of everyone else. ie you have to cover up the fact that the newly printed money almost always goes right into the pockets of the rich. Media control to cover up the loss in living standards is absolutely critical. In the US this is working pretty well.

2. Control inflation statistics. Invent bullcrap terms like "hedonic adjustments". If it cannot be bullcrapped away then simply dont count the inflation in the official statistics. ie ignore it.

3. Maintain an external demand for your devaluing currency. It helps if your currency is a global reserve currency. And it helps even more when all competing currencies are devaluing.

That's what I don't understand. How folks can be so easily foolish and fooled about the purchasing power by some statistics put forward by propaganda departments like the BLS.


Whats up with Inflation?
http://charleshughsmith.blogspot.com/2013/07/whats-up-with-inflation.html

Selected quote below, though the author makes numerous salient points regarding the decreased value of the dollar as it seeks to buy what it once did.

In my analysis, the debate over inflation misses two key points. What really matters is not the rate of inflation, which can be endlessly debated, but the purchasing power of earned income, i.e. wages.

Instead of fruitlessly arguing over hedonic adjustments and the weighting of components, we should ask: how many hours of labor (at the average hourly rate for full-time workers) does it take to buy a loaf of bread, a new car, a gallon of gasoline, a new TV, a new house, college tuition and fees, etc., and compare that to how many hours of labor it took to buy all those goods and services in the past.


This methodology eliminates hedonics (i.e. the computer you buy today is much faster than the one you bought 10 years ago), as this adjustment plays no part in the actual costs of manufacture or the consumer's decision: we don't have a choice to buy a computer with 1990-era specs, so the hedonic adjustment is merely a tool for gaming the CPI.