Spungo
Diamond Member
- Jul 22, 2012
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Seriously, what are they buying for 40 billion a month?
Votes?
Seriously, what are they buying for 40 billion a month?
You do realize that buying bonds gets you your money back when the bonds mature right? Dams and aircraft carriers don't. Care to try again?
Seriously, what are they buying for 40 billion a month?
...Treasuries and MBS
That is a massive amount of treasuries and MBS.
Look at the opening post, then go look at the three gorges dam, or a super aircraft carrier.
Exactly what is that money buying every month?
The fed is buying mortgage backed securities. Ok, and? Are we looking at the fed buying mortgages that will go belly up in a couple of years? Are the mortgages left over from the 2008 housing collapse the banks can not get rid of? Is the fed buying homes to keep housing prices high? And how many mortgages will 85 billion a month buy?
The goal of QE is to keep rates low.
Main question many folks have is, has the Fed just delayed the collapse.
The fed already does that by setting the prime rate.
I think that is the point where we are at.
When we are spending enough money to build 3 three gorges dams every month, something is wrong.
To your second point. That money can't go to building dams or aircraft carriers directly, further it's already going to prop up the economy. There is not any leftover money, and there is not really a choice. The Fed printing is needed to keep the government solvent. It's congress issue for not building dams, but if they wanted to the fed could print more, that being said, the existing printing of 85 billion a month is already needed elsewhere to plug holes in the economy.
If one month of QE spending were put into infrastructure projects this recession would end.
Its not about building dams, or aircraft carriers, this is about perspective.
When the news says the fed is buying $85 billion a month, most people have no idea how much money that is.
The term $85 billion did not click in my head until a couple of weeks ago. I was on wikipedia reading about aircraft carriers. When I saw the price tag of the Gerald Ford, I thought to myself, "holy crap, we are buying around 5 - 6 of these a month through QE?"
If even part of these mortgage backed securities goes belly up we are looking at a massive loss.
We bailed out wall street several times, now we are giving them free money every month?
The prime is set at zero, or around zero. So that is free money to the banks.
And the fed has been buying $85 billion for the year of bonds / securities?
What could possibly go wrong?
The fed already does that by setting the prime rate.
The goal of QE is to keep rates low. Low rates support housing prices. More generally by buying up a lot of the low risk assets QE encourages market investment in riskier assets and ventures. Economic growth and employment should follow.
Bingo
And we desperately need infrastructure for the new era. We need to renew our bridges, and I think rail is a good way to go as gas becomes shorter in supply. Freight by Mississippi, etc. The green energy projects just aren't going to work out and if they do it won't be anytime soon so we better build realistically, IMO.
I certainly can't see any flaws in a plan that involves propping up home prices and encourages riskier investment...
The problem with this and all of the logic here is a misunderstanding of what the Fed is, and how money gets 'printed' in the new world.
The fed does not just print money and engage in building things. It expects a financial instrument in return - ie, debt.
Basically they purchase high risk debt (MBS) and US treasuries, these instruments represent debt from previously spent money. The idea is that these instruments are replaced by cash, so that cash can then be lent out again.
The problem with this and all of the logic here is a misunderstanding of what the Fed is, and how money gets 'printed' in the new world.
The fed does not just print money and engage in building things. It expects a financial instrument in return - ie, debt.
Basically they purchase high risk debt (MBS) and US treasuries, these instruments represent debt from previously spent money. The idea is that these instruments are replaced by cash, so that cash can then be lent out again.
example : A bank holds $1 billion in MBS, mortgage securities. The bank has 10 billion in deposits, 9 billion in investments including the 1B in MBS, and 1 billion in cash. The 1B in cash is their 10% reserve amt, so they cannot make loans. The Fed buys their $1B MBS', now the bank has 2B in cash, and can make up to 1B in loans.
If you have a problem with this, then you have a problem with how the US gov't spends its money. After all, by the time the Fed gets the debt instruments the money that instrument represents has already been spent. They are just replacing the debt instrument with cash that can then be spent again, but the Fed isn't the one spending it.
The Fed also expects to be able to sell those instruments in the future.
The banks aren't lending out the money though. Which is why inflation is pretty tepid despite the printing. JPM has massive reserves. It does reflect the direction of the banking sector as a whole though.The problem with this and all of the logic here is a misunderstanding of what the Fed is, and how money gets 'printed' in the new world.
The fed does not just print money and engage in building things. It expects a financial instrument in return - ie, debt.
Basically they purchase high risk debt (MBS) and US treasuries, these instruments represent debt from previously spent money. The idea is that these instruments are replaced by cash, so that cash can then be lent out again.
example : A bank holds $1 billion in MBS, mortgage securities. The bank has 10 billion in deposits, 9 billion in investments including the 1B in MBS, and 1 billion in cash. The 1B in cash is their 10% reserve amt, so they cannot make loans. The Fed buys their $1B MBS', now the bank has 2B in cash, and can make up to 1B in loans.
If you have a problem with this, then you have a problem with how the US gov't spends its money. After all, by the time the Fed gets the debt instruments the money that instrument represents has already been spent. They are just replacing the debt instrument with cash that can then be spent again, but the Fed isn't the one spending it.
The Fed also expects to be able to sell those instruments in the future.
I'm already betting against America.Sarcasm sure. The USA is built on the entrepreneurial energy of risk takers who chose to start a business, create an invention, pursue an idea, etc. Don't bet against America.
That word. I do not think it means what you think it means.The banks aren't lending out the money though. Which is why inflation is pretty tepid despite the printing
article said:If we calculate the inflation rate the exact same way the government did prior to 1990, the inflation rate is averaging around 6.5%, which is basically double the official rate. However, if we measure inflation the same way the government did back prior to 1980, the inflation rate clocks in at a mind-numbing 11%.
Since 2002 the Big Mac has risen in price at nearly three times the rate of (officially stated) inflation.
We all know that the federal reserve has been buying $85 billion every month is what it calls quantitative easing (QE).
Lets put that $85 billion in perspective.
Aircraft carriers
85 billion would buy 6.5 super aircraft carriers. The USS Gerald R. Ford (CVN-78) currently under construction cost $13.5 billion.
The United States has 10 aircraft carriers in active duty. Three more are in the planning phase or under construction.
With just 2 months of this quantitative easing we could double the number of aircraft carriers. Which would provide thousands of jobs for close to 3 decades.
Three gorges dam
Three gorges dam, the largest construction project in the world only cost $26 billion in US dollars, and took 9 years to complete.
With just one month of QE spending we could build 3 three gorges dams.
A documentary on netflix about the three gorges dam said 40,000 people were employed to build the dam.
One month of QE could employee 120,000 people for 9 years, have some spare change left over, and build 3 super dams at the same time.
13 cities, 140 towns, and more than 1,600 villages have been submerged under the world's largest reservoir. An official count of 1.3 million people were relocated.
Since partial completion in 2006, there have been reports of cracks, landslides, ecological deterioration, and accumulation of algae (water becoming murkish)
Although the dam was supposed to control flooding on the Yangtze, 2010 is on track to be one of the worst flood years ever
By July 20, the Yangtze River at the Three Gorges Dam experienced its highest river discharge in 130 years, and the highest since the dam was built. The dam's walls released 40,000 m3/s of water, while 30,000 m3/s of the river flow was held back in behind the dam, after water levels in the Reservoir had risen four meters overnight.[66] The reservoir's water levels peaked at 158.86 meters on the morning of July 23, whereas the "alarm level" of the reservoir was at 145 m. All ferry service in the Reservoir was halted as total flow rate exceeded 45,000 m3/s, although the crest of the flooding passed the dam by July 24.[26] A second peak in the river arrived at the dam on July 28,[60] when the peak flow from the dam was a record 56,000 m3/s.[65]
By early August, a thick layer of garbage covering 50,000 square metres (540,000 sq ft) and 60 centimetres (2.0 ft) deep, including tree branches, plastic bottles and domestic waste, swept into the reservoir by floods since July threatened to clog the shipping locks at the dam's wall. Workers are removing 3,000 tons of garbage daily, and the company responsible for the dam has paid for 150,000 to 200,000 cubic meters of garbage to be removed annually.
We need more aircraft carriers? lol
Where do you propose we build some of these dams. You might want to look up the impact that the 3 gorges dam had.
I think there are better ways to put it. For example in CA they have built 23 new prisons in the last 30 years but only 1 research university. They spend about a billion more housing inmates than they do on higher education.