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(Global Geopolitics)   BRICS nations get a little itchy-biatchy over US money printing, decide to mitigate the impact of a stronger U.S. Dollar   (glblgeopolitics.wordpress.com ) divider line 5
    More: Interesting, BRIC, note, BRICS nations, capital controls, U.S. Federal Reserve, Xi Jinping, global economy, financial markets  
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1388 clicks; posted to Business » on 25 Jun 2013 at 8:37 AM (2 years ago)   |   Favorite    |   share:  Share on Twitter share via Email Share on Facebook   more»



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2013-06-25 03:50:00 PM  
1 vote:

Ricardo Klement: Debeo Summa Credo: Assume the treasury has to issue $60b per month to fund the deficit.

If all $60b of that comes from investors, there is no money created. Every dollar that went to buy treasuries already existed and was held by investors prior to buying treasuries.

If the fed is buying $40b of those treasuries (these numbers are realistic in today's environment), only $20b comes from outside. The other $40b was created by the fed to buy treasuries. The fed basically says to the treasury: here's $40b of crisp new dillar bills to buy stuff with, pay us back later. Yes, interest rates are affected by this, because the newly created dollar bills are a supply of capital that drives down equilibrium interest rates. But new money is created. If and when the fed shrinks it's balance sheet, money supply is reduced.

But there's no difference between having a bond that says $1 on it than having a piece of cotton paper that says $1 on it.  Not while interest rates are effectively 0.  Trading one for the other isn't creating anything, just changing the name.  In both cases, there's $1 in your hands, and $1 in that of the feds.  You can trade those two all year long, and both sides will still only have one thing with $1 on it.  Nothing is made.  No money is printed.


Think of a world where there's exactly $100 in currency outstanding.

The govt decides to fund a deficit financed stimulus program. They borrow another $20 to fund this stimulus spending.

Rather than go to market to finance the deficit, which would require investors to pull $20 from elsewhere to buy the govt debt, the govt goes to the central bank to finance the deficit.

The central bank prints $20 and gives it to the govt, and the govt gives the central bank an IOU for $20. The govt spends this $20, which when added to the original $100 in outstanding currency (which was untouched), results in a new total currency supply of $120.

At some point, at least in theory, the treasury will redeem the IOU by giving the central bank $20 back, which the central bank will take out of circulation, reducing the money supply to the original $100.

But until that point, the process of the central bank buying treasury securities is effectively no different than if the govt said "fark it, we're cutting out the
middle man, going full Zimbabwe and just printing the $20 ourselves.
2013-06-25 02:25:53 PM  
1 vote:

Stile4aly: Debeo Summa Credo: Ricardo Klement: Debeo Summa Credo: Ricardo Klement: QE is not printing money.

People should stop getting their economics information from the Pauls.

What is it then when the fed buys mortgages and treasuries each month? It isnt literally printing cash, but it is crediting the reserve accounts of banks for the securities they sold to the fed. The $85b per month or whatever it is is being conjured out of thin air. If a bank or other counterparty wanted cash, it could convert it's reserve account balance into literal cash.

This isn't printing money because the short-term interest rates are basically zero, money and short-term bonds are the same thing. Exchanging money for short-term debt has no effect, and giving banks more money is exactly the same as giving them short-term debt.

That's not to say that QE is harmless. Long-term debt has its uses, especially putting off inflation. So buying it back means that you undo that putting-off of inflation. But it is still not the same as CREATING the inflation in the first place. It already exists, we just sold it to the future.

Huh? I don't understand. When the fed buys treasuries, which it is doing to a significant extent, it is trading newly created cash, more or less, for govt debt. The govt uses the cash to fund food stamps or aircraft carriers or whatever. So all the money used to buy those food stamps and aircraft carriers was just conjured from nothing, increasing the money supply, essentially printing money.

The fact the treasuries the fed has purchased will eventually mature has no bearing on the fact that they printed money to buy them now. If the govt does eventually pay off the notes, without just refinancing them
with the fed (ie the fed shrinks it's balance sheet) then the fed will be reducing the money supply. But while it continues to expand its balance sheet it is in fact "printing money".

I'm no paullist and I understand why they've needed to take the steps they have, but I think the phrase "printing ...

The US budget operates independently of treasury sales.  Though the debt limit sets a maximum to the amount of treasuries which can be sold, the spending is authorized regardless of whether those treasuries actually sell or not.  As such, the Fed purchases of treasuries do not inject money into economic circulation, they only serve to restrain interest rates.


Assume the treasury has to issue $60b per month to fund the deficit.

If all $60b of that comes from investors, there is no money created. Every dollar that went to buy treasuries already existed and was held by investors prior to buying treasuries.

If the fed is buying $40b of those treasuries (these numbers are realistic in today's environment), only $20b comes from outside. The other $40b was created by the fed to buy treasuries. The fed basically says to the treasury: here's $40b of crisp new dillar bills to buy stuff with, pay us back later. Yes, interest rates are affected by this, because the newly created dollar bills are a supply of capital that drives down equilibrium interest rates. But new money is created. If and when the fed shrinks it's balance sheet, money supply is reduced.
2013-06-25 10:02:36 AM  
1 vote:

Ricardo Klement: QE is not printing money.

People should stop getting their economics information from the Pauls.


What is it then when the fed buys mortgages and treasuries each month? It isnt literally printing cash, but it is crediting the reserve accounts of banks for the securities they sold to the fed. The $85b per month or whatever it is is being conjured out of thin air. If a bank or other counterparty wanted cash, it could convert it's reserve account balance into literal cash.
2013-06-25 09:46:39 AM  
1 vote:
QE is not printing money.

People should stop getting their economics information from the Pauls.
2013-06-25 08:46:04 AM  
1 vote:
Hmm. Mitigate a stronger US dollar? This would be the first time in history that something was made more valuable by creating 85 billion more of them per month.
 
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